EconoMonitor

Nouriel Roubini's Global EconoMonitor

Teaching PIIGS to Fly

Greece’s fiscal problems are, as I have argued many times, but the tip of a global iceberg. For the next installment of the recent global financial crisis will be rising sovereign risk, especially in advanced economies that run massive budget deficits and accumulate large stocks of public debt as they socialize private financial losses in order to revive economic growth.

Indeed, history suggests that severe recession and socialization of private losses often lead to an unsustainable build-up of public debt. Moreover, financial crises triggered by excessive debt and leverage in the private sector are followed after a few years by sovereign defaults and/or high inflation to wipe out the real value of public debts.

Greece is also the canary in the coal mine for the euro zone, where all the PIIGS economies (Portugal, Italy, Ireland, Greece, and Spain) suffer from the twin problems of public-debt sustainability and external-debt sustainability. Euro accession and bull-market “convergence trades” pushed bond yields in these countries toward the level of German bunds, with the ensuing credit boom supporting excessive consumption growth.

Most of these economies were suffering a loss of their export markets to low-wage Asia. A decade of wage growth exceeding productivity gains led to real appreciation, loss of competitiveness, and large current-account deficits.

In Spain and Ireland, a housing boom exacerbated external imbalances by reducing national saving, pumping up consumption, and boosting residential investment. And the euro’s appreciation in recent years – driven in part by the European Central Bank’s excessively tight monetary policy – was the final nail in the competitiveness coffin.

Thus, restoring competitiveness, not just fiscal adjustment, is necessary to revive sustained growth. There are only three ways to accomplish this. A decade of deflation would work, but it would be accompanied by economic stagnation, thus becoming – as in Argentina earlier this decade – politically unsustainable, leading to devaluation (exit from the euro) and default.  Accelerating structural reforms that increase productivity while keeping the growth of public and private wages in check is the right approach, but it is likewise politically difficult to implement.

Or a weaker euro could be had if the ECB were willing – quite unlikely – to ease monetary policy further to allow real depreciation. But a weaker euro would not eliminate the need for structural reforms; otherwise, the benefits would go mostly to countries like Germany that undertook painful reforms to restore competitiveness via a reduction in relative unit labor costs.

A shadow or actual International Monetary Fund program would vastly enhance the credibility of a policy of fiscal retrenchment and structural reforms. Under the former, the European Commission would impose fiscal and structural conditionality on Greece, while the EU and/or ECB would provide financing, which would be absolutely necessary, because announcing even the best conceived reform program would not be sufficient to restore lost policy credibility. Markets will remain skeptical, especially if implementation leads to street demonstrations, riots, strikes, and parliamentary foot-dragging. Until credibility is re-established, the risk of a speculative attack on public debt – reflected in the current rise in credit default swap spreads – would linger, given the ongoing budget deficit and the need to roll over maturing debt.

Since the European Union has no history of imposing conditionality, and ECB financing could be perceived as a form of bailout, a formal IMF program would be the better approach. The most successful programs undertaken in the presence of a risk of a fiscal and/or external debt financing crisis were those – as in Mexico, Turkey, and Brazil – where a large amount of liquidity/financing support by the IMF beefed up an increasingly credible commitment to adjustment and reform.

Loan guarantees from Germany and/or the EU are less desirable than an IMF program, as it is very hard to design and credibly implement conditionality in such guarantees. IMF support, on the other hand, is paid out in tranches and is conditional on achieving various policy targets over time.

The Greek authorities and the EU had until recently denied the need for financing, owing to concern that it would signal weakness and create a stigma. That was a grave mistake. Fiscal adjustment and structural reform without financing is more fragile and liable to fail without a war chest of liquidity to prevent a run on public debt while the appropriate policies are implemented and gradually gain credibility.

At the same time, if Greece does not fully adjust its policies to restore fiscal sustainability and competitiveness, a partial bailout by the EU and the ECB will still be likely in order to avoid the risk of contagion to the rest of the euro zone and the consequent threat to the monetary union’s survival. A default by Greece, after all, could have the same global systemic effects as the collapse of Lehman Brothers did in 2008.

Sovereign spreads are already pricing the risk of a domino effect from Greece to Spain, Portugal, and other euro-zone members. The EU and the ECB are worried about the moral hazard of any “bailout.” But that is precisely why a credible IMF program that ties financial support to the progressive achievement of fiscal and structural reform goals is the right way to teach Greece and the other PIIGS how to fly.

This article was originally published at Project Syndicate.

32 Responses to “Teaching PIIGS to Fly”

Miss AmericaFebruary 16th, 2010 at 11:48 am

Hello NR,Your last piece With Arnab “Will Europe’s Pigs Learn to Fly” was fantastic!It reminded me of some of your “subprime” pieces you wrote a couple of years back, that were always ahead of the curve!As far as my reviw of their debt situation goes… When reviewing your crazy Uncle Troy’s debt problems, it’s always tough to swallow just how your uncle could’ve gotten himself into so much trouble. You come over his house, you sit down at the kitchen table, and you go through his books. …everything looks bad… So you make a plan! …and it’s gonna be tough, but the plan might just work???…but then…Your Uncle Troy lets you know about the “off the books” stuff. You know… the gambling addiction, and subsequent potential debt he owes to his bookies… if his bet doesn’t pay. Those horse racing bets he laid, to hopefully finance his existing loans!How much financing through “Titlos” (and other similar “swaps”) does Greece have, when the vicious cycle hits. What the total debt exposure of their previous backdoor financing? Much like the Monolines’ need for AAA rating to survive… (You know… that whole argument of: “anything that would implode, if it faced a ratings reduction, should not deserve AAA rating in the first place!”) …how do Greek insurables survive the necessary rating reductions??? …and if reduced, implosions are guaranteed… then how can you justify not reducing the ratings?!?!?!?All the best,Rich Hartmann – Miss Americap.s. Doncha think it was a bit ironic of your boy Nassem Taleb, to say “every person on earth should short T’s” …because it’s such a “sure bet”. The irony of course being Taleb fails to account for any Black Swans. The man’s whole claim to fame on unforeseeable variables comes crashing in on him with that statement. (of course, apart from the fact that it would crash and burn in practice.)p.p.s. When are you gonna get me on board with your team??? Sent the res a while ago… …and gotta admit, I’ve been a little perplexed as well as disappointed that I didn’t even get a reply. (Forget “rejection”. A reply or even acknowledgement would’ve been nice…. No?)

Little SaverFebruary 18th, 2010 at 1:06 am

For the real pigs, that is? Those animals have to give their lives to satisfy our gluttony. A bit like little savers have to sacrifice their right on decent interests to satisfy the wants of the supergreedy.Sympathy for the pigs. Solidarity with the Greek people. Down with the supergreedy at the top everywhere.

MorbidFebruary 16th, 2010 at 1:41 pm

How much financing through “Titlos” (and other similar “swaps”) does Greece have, when the vicious cycle hits. What the total debt exposure of their previous backdoor financing?

Good point – something the professor fails to mention.But really, the whole economic thing is unsustainable. Adding 80 million more humans to the planet is unsustainable. How would you modify your economic policy in light of this “natural” limits.

PeterJBFebruary 16th, 2010 at 3:52 pm

Talking about the F’PIIGS (don’t forget France).”But, let’s be clear, the liability of the New York investment bank (as an accomplice) is just as great, especially when one is aware of the fact that Goldman Sachs’ vice-president for Europe was, at the time, a certain Mario Draghi (11), currently President of the Italian Central Bank and a candidate (12) to succeed Jean-Claude Trichet at the head of the European Central Bank (13).Without wishing to pre-judge Mr. Draghi’s role in the affair of the loan manipulating Greece’s statistics (14), one should ask oneself if it wouldn’t be worthwhile to question his involvement in the affair (15). In a democracy, the press (1), like parliaments (in this case Greek and European), are expected to take on this task themselves. Considering the importance of GS in world financial affairs these last few years, nothing that this bank does should leave governments and legislators indifferent. It is Paul Volcker, current head of Barack Obama’s financial advisors, who has become one of the strongest critics of Goldman Sachs’ activities (17). We already had the occasion to write, at the time of the election of the current US President, that he is the only person in his entourage having the experience and skills to push through tough measures (18) and who, at this moment, knows what, or rather whom, he is talking about.”^^GEAB No. 42http://www.leap2020.eu/geab-n-42-is-available!-second-half-of-2010-sudden-intensification-of-the-global-systemic-crisis-strengthening-of-five_a4294.htmlHo hum

PeterJBFebruary 17th, 2010 at 6:16 am

We are talking about incest, are we not? If so, then what do we know of incest in terms of the outcome? Okay, you are, naturally and, of course, correct.Offensive? Being deliberately raped by politicians, er, “leadership”, is offensive, not acronyms.Forsooth…;-)>Ho hum

MorbidFebruary 16th, 2010 at 5:28 pm

How markets attacked the Greek piñataHere we have a clear view of the criminals at work. And we believe we are civilized? Like this the contagion can spread as suggested in A Greek Crisis Coming To America?

This is where the idea of CDS as insurance breaks down. For over 250 years, insurance markets have required buyers to have an insurable interest; another name for skin in the game. Your neighbour cannot buy insurance on your house because they have no insurable interest in it. Such insurance is considered unhealthy because it would cause the neighbour to want your house to burn down – and maybe even light the match.When the CDS market started in the 1990s the whiz-kid inventors neglected the concept of insurable interest. Anyone could bet on anything, creating a perverse wish for the failure of companies and countries by those holding side bets but having no interest in the underlying bonds or enterprises. We have given Wall Street huge incentives to burn down your house.

teach to fallFebruary 16th, 2010 at 8:38 pm

http://news.bbc.co.uk/2/hi/7485331.stm.The founder of the group, Richard Gage, says the collapse of the third tower is an obvious example of a controlled demolition using explosives.”Building Seven is the smoking gun of 9/11. A sixth grader can look at this building falling at virtually freefall speed, symmetrically and smoothly, and see that it is not a natural process.”Buildings that fall in natural processes fall to the path of least resistance”, says Gage, “they don’t go straight down through themselves.”

teach to fallFebruary 17th, 2010 at 9:28 am

http://patriotsquestion911.com/professors.html#henry.keywords: fraud, lie, absurdity, mass murder, terror,fear, delusion, complicity. iow , the economy. man..* Video documentary 9-11 Open Your Eyes The War On Terror Is A Lie 5/04:”There was a discussion going on about what actually hit the Pentagon. It could scarcely have been an airliner. There’s been a lot of evidence on that. And there’s questions whether it might have been a fighter plane or it might have been a missile. There have been rather detailed engineering calculations — simulations — done, which would make it pretty clear that something like an airliner, which is largely aluminum, would have simply been shredded by the number of steel-reinforced columns that occur in the Pentagon, where it hit. And so there’s no possibility of an airplane penetrating very far into the Pentagon. Whereas whatever entered actually punched a hole three rings into the Pentagon, so it had been through six reinforced ground floor walls of the Pentagon as well as all these columns. And it’s impossible. So, I think the only thing which might conceivably do that is a hardened missile. … at 6:38 of video at http://www.archive.org/details/911o“One can make some pretty definite conclusions by looking at evidence about their — available evidence — about their collapse. The towers were supported by 47 massive steel columns, which extended up the central part of each tower. And the official story is that the fuel from the plane got into this space around these columns and then softened the columns, so that the towers eventually collapsed. That’s highly unlikely in terms of the amount of heat necessary to soften steel, which just really wasn’t available and it would require a perfect mix of fuel and all kinds of things like that. But aside from that, the vision is that this central core of the building was turned into an inferno to soften these columns. But that’s preposterous because between the columns were the elevators and the services and the staircases going up the towers. And the elevators and staircases were actually in use during this time. So the thesis is people were quietly walking through an inferno. And so, it’s a total absurdity.” at 14:30 of the video at http://www.archive.org/details/911o..# Personal blog 2/9/07: “David Ray Griffin has web-published a splendid, highly footnoted account of The Destruction of the World Trade Center: Why the Official Account Cannot Be True: This scholarly work, rich in eyewitness accounts, includes 11 separate pieces of evidence that the World Trade Center towers 1, 2 [each 1300+ feet tall, 110 stories] and 7 were brought down by explosives. [Editor’s note: WTC Building 7 was 610 feet tall, 47 stories. It would have been the tallest building in 33 states. Although it was not hit by an airplane, it completely collapsed into a pile of rubble in less than 7 seconds at 5:20 p.m. on 9/11, seven hours after the collapses of the Twin Towers. However, no mention of its collapse appears in the 9/11 Commission’s “full and complete account of the circumstances surrounding the September 11, 2001 terrorist attacks.” Watch the collapse video here. Finally, on 11/20/08, more than seven years after 9/11, the Federal government published its final report on the collapse of WTC 7, which “found that the fires on multiple floors in WTC 7, which were uncontrolled but otherwise similar to fires experienced in other tall buildings, caused an extraordinary event.” Despite the absence of any visible fire at the time of collapse, the government report alleges WTC Building 7 is the first and only steel-framed high-rise building in the history of mankind to collapse simply as the result of a fire.]… I implore my fellow physicists and engineers who may have the time, expertise, and (ideally) supercomputer access to get to work on the physics of the World Trade Center collapses and publish their findings in refereed journals like, say, the Journal of Applied Physics.The issue of knowing who was really behind the 9/11 attacks is of paramount importance to the future of our country, because the “official” assumption that it was the work of 19 Arab amateurs (1) does not match the available facts and (2) has led directly to the deplorable Patriot Act, the illegal Iraq war, NSA spying on ordinary Americans, repudiation of the Geneva Conventions, and the repeal of habeas corpus (a fundamental point of law that has been with us since the signing of the Magna Carta in 1215).Surely these Orwellian consequences of public ignorance constitute more than sufficient motivation for any patriotic American physicist or engineer to join the search for 9/11 Truth!” http://impactglassman

teach to fallFebruary 17th, 2010 at 11:01 am

http://www.snowshoefilms.com/911coverup.html.JOHN McMURTRY: WHY THE FACTS OF 9-11 ARE SUPPRESSED Understanding the ruling group-mind behind the war without end: “In response to the extreme pressures of forcing reality to conform to manufactured delusions, the group and its members become increasingly submerged within a pre-conscious field of hysteria, denials and projections. In the case of 9-11 and the 9-11 Wars, the shadow subject of the ruling group-mind and its executive vector propelled two war criminal invasions of other societies and police-state laws across the world in under three years.” Insight into the “ruling group-mind” is reflected by David Rockefeller at a Bilderberg session in 1991: “A supernational sovereignty of an intellectual elite and world bankers is surely preferable to the national autodetermination practiced in past centuries.” Their program is being played out in Iraq against heroic resistance, while elsewhere in the empire the “regulating group-mind” (what Julian Jaynes calls the collective cognitive imperative; and Leon Festinger, in his manual on cognitive dissonance, calls cognition.) demands complicity with its fundamental assumptions, e.g. that 9-11 was an attack from the outside and that the Earth and its creatures are not sacred. Intl. Citizen’s Inquiry into 9-11, Toronto, May 30, 2004. 51min 23 meg quicktime file 15meg winmedia file – higher qual avail at and thanks to archive.org

PeterJBFebruary 17th, 2010 at 4:31 pm

Just when you were comfortably forgetting all about “Peak Oil”:”Peak phosphorus, as White and his colleagues describe it, based on data from the U.S. Geological Survey and the fertilizer industry, makes peak oil look like a cakewalk.”http://www.miller-mccune.com/science-environment/the-story-of-pee-8736/Scientific revolutions, almost by definition, defy common sense. If all our common-sense notions about the universe were correct, then science would have solved the secrets of the universe thousands of years ago. The purpose of science is to peel back the layer of the appearance of objects to reveal their underlying na…ture. In fact, if appearance and essence were the same thing, there would be no need for science.Michio KakuAnd, er, from me:Observation: Julian Jaynes suggested that Circa 1000 BCE it was if men had lost contact with their Gods and I add:Perhaps it was just the beginning of naturally losing our contact with the creative Cause and the start of the journey to find ourselves; I call it differentiation and a process that will continue if we don’t surrender all of ourselves to the ‘charms’ of the incompetent and stupid, the Clan of the Cave Bear, er, “leadership”, in the meantime.Em Hotep – It is the time to become the HereticHo hum

Little SaverFebruary 18th, 2010 at 1:19 am

Julian Jaynes suggested that Circa 1000 BCE it was if men had lost contact with their Gods.Yes, about that time, they began being kicked out of the paradise of ignorance by eating from the tree of knowledge. Process still going on, very slow. Most don’t want to lose their little private paradise. Bush, Blankfein, Bernanke, Benedict…

blindmanFebruary 18th, 2010 at 10:04 am

http://www.counterpunch.org/.here , ” ooh poo pa doo, they call me the most. ” w.p.?and this just has to piss one off, no?.The War on Consumers and Labor Heats UpWall Street Moves in for the KillFebruary 17, 2010By MICHAEL HUDSON.Former Treasury Secretary Hank Paulson wrote an op-ed in The New York Times yesterday, February 16 outlining how to put the U.S. economy on rations. Not in those words, of course. Just the opposite: If the government hadn’t bailed out Wall Street’s bad loans, he claims, “unemployment could have exceeded the 25 per cent level of the Great Depression.” Without wealth at the top, there would be nothing to trickle down.The reality, of course, is that bailing out casino capitalist speculators on the winning side of A.I.G.’s debt swaps and CDO derivatives didn’t save a single job. It certainly hasn’t lowered the economy’s debt overhead. But matters will soon improve, if Congress will dispel the present cloud of “uncertainty” as to whether any agency less friendly than the Federal Reserve might regulate the banks.Paulson spelled out in step-by-step detail the strategy of “doing God’s work,” as his Goldman Sachs colleague Larry Blankfein sanctimoniously explained Adam Smith’s invisible hand. Now that pro-financial free-market doctrine is achieving the status of religion, I wonder whether this proposal violates the separation of church and state. Neoliberal economics may be a travesty of religion, but it is the closest thing to a Church that Americans have these days, replete with its Inquisition operating out of the universities of Chicago, Harvard and Columbia.If the salvation is to give Wall Street a free hand, anathema is the proposed Consumer Financial Protection Agency intended to deter predatory behavior by mortgage lenders and credit-card issuers. The same day that Paulson’s op-ed appeared, the Financial Times published a report explaining that “Republicans say they are unconvinced that any regulator can even define systemic risk. … the whole concept is too vague for an immediate introduction of sweeping powers. …” Republican Senator Bob Corker from Tennessee was willing to join with the Democrats “to ensure ‘there is not some new roaming regulator out there … putting companies unbeknownst to them under its regime.”Paulson uses the same argument: Because the instability extends not just to the banks but also to Fannie Mae and Freddie Mac, Lehman Brothers, A.I.G. and Wall Street underwriters, it would be folly to try to regulate the banks alone! And because the financial sector is so far-flung and complex, it is best to leave everything deregulated. Indeed, there simply is no time to discuss what kind of regulation is appropriate, except for the Fed’s familiar protective hand: “delays are creating uncertainty, undermining the ability of financial institutions to increase lending to businesses of all sizes that want to invest and fuel our recovery.” So Paulson’s crocodile tears are all for the people. (Except that the banks are not lending at home, but are shoveling money out of the U.S. economy as fast as they can.)As Obama’s chief of staff Rahm Emanuel put it, a crisis is too good a thing to waste. Having created the crisis, Wall Street wants to use its momentum to knock out any potential checks to its power. “No systemic risk regulator, no matter how powerful, can be relied on to see everything and prevent future problems,” Paulson explained. “That’s why our regulatory system must reinforce the responsibility of lenders, investors, borrowers and all market participants to analyze risk and make informed decisions,” In other words, blame the victims! The way to protect victims of predatory bank lending (and crooked sales of junk securities) is not new regulations but just the opposite: “to simplify the patchwork quilt of regulatory agencies and improve transparency so that consumers and investors can punish excesses through their own informed investing decisions.” Simplification means the Fed, not a Consumer Financial Protection Agency.Moving in for the kill, Paulson explains that the Treasury is bare, having used $13 trillion to bail out high finance in 2008-09. So he warns the government not to run a Keynesian-type budget deficit. The federal budget should move into balance or even surplus, even if this accelerates the rise in unemployment and decline in wage levels as the economy moves deeper into recession and debt deflation. “We must also tackle what is by far our greatest economic challenge — the reduction of budget deficits — a big part of which will involve reforming our major entitlement programs: Medicare, Medicaid and Social Security.” The economy thus is to be sacrificed to Wall Street rather than reforming finance so that it serves the economy more productively. It is simple mathematics to see that if the government cannot raise taxes, it must scale back Social Security, other social welfare spending and infrastructure spending.What is remarkably left out of account is that today’s financial crisis, centered on public debts, is largely a fiscal crisis in character. It is caused by replacing progressive taxation with regressive taxes, and above all by untaxing finance and real estate. Take the case of California, where tears are being shed over the dismantling of the once elite University of California system. Since American independence, education has been financed by the property tax. But Proposition 13 has “freed” property from taxation – so that its rental value can be borrowed against and turned into interest payments to banks. California’s real estate costs are just as high with its property taxes frozen, but the rising rental value of land has been paid to the banks – forcing the state to slash its fiscal budget or else raise taxes on labor and consumers.The link between financial and fiscal crisis – and hence the need for a symbiotic fiscal-financial reform – is just as clear in Europe. The Greek government has pre-sold its tax revenues from roads and other infrastructure to Wall Street, leaving less future revenue to pay its public debt. To cap matters, paying income tax is almost voluntary for wealthy Greeks. Tax evasion is hardly necessary in the post-Soviet states, where property is hardly taxed at all. (The flat tax falls almost entirely on labor.)Throughout the world, scaling back the 20th century’s legacy of progressive taxation and untaxing real estate and finance has led to a public debt crisis. Property income hitherto paid to governments is now paid to the banks. And although Wall Street has extracted $13 trillion in bailouts just since October 2008, the thought of raising taxes on wealth to pay just $1 trillion over an entire decade for Social Security or health insurance is deemed a crisis that would lead Wall Street to shut down the economy. It is telling governments to shift to a regressive tax system to make up the fiscal shortfall by raising taxes on labor and cutting back public spending on the economy at large. This is what is plunging economies from California to Greece and the Baltics into fiscal and financial crisis. Wall Street’s solution – to balance the budget by cutting back the government’s social contract and deregulating finance all the more – will shrink the economy and make the budget deficits even more severe.Financial speculators no doubt will clean up on the turmoil..comment: incarcerated with fish in a watery cell, what does”clean up” mean? ????.(separate post here)another comment: speaking of the weather and urine, etc. i don’t hear muchabout the circulation, energetic, from the equatorial to polardirections, and this seems to be the big principle, cycle thatshould? be at the foundation of any sustainable, commensulate,design, systemic. sympathetic to its essence / foundation /home, receptive and in accord as it were. extended out in thelong chains of cause and effect. natural distribution mechanism.free deliveries.?”urine blindness”, that is another good one. “life’s values”,the movie ! inspirational and funny.

ooh poo pah do.February 18th, 2010 at 10:54 am

http://www.youtube.com/watch?v=tD1fPjK4-Co&feature=PlayList&p=4BE611D8CE4F732B&playnext=1&playnext_from=PL&index=61.king curtis and the shirelles..Artist: Wilson PickettSong: Ooh Poo Pah DooTranslate: German | French | Spanish | Italian | Russian | PortugueseI wanna tell you about ooh poo pah dooThey call me the mostOoh poo pah dooThey call me the most, yeahI won’t stop tryin’ till I create disturbance in your mindNow ooh poo pah dooThey call me the mostOh, yeah nowThey call me the mostI won’t stop tryin’ till I create disturbance in your mindCreate disturbance in your mindCreate disturbance in your mindCreate disturbance in your mindCreate disturbance in your mindI won’t stop tryin’ till I create disturbance in your mindLord have mercySoul is happy childrenOhh pah dooThey call me the mostOh, mama, mama, mama, mamaDon’t you know they call me the most, heyI won’t stop tryin’ till I create disturbance in your mindLook in here baby, here’s what I’m gonna doRing a few bells in your earRing a few bells in your earRing a few bells in your earRing a few bells in your earI won’t stop tryin’ till I create disturbance in your mind..http://www.counterpunch.org/andrew02122010.html.February 12-14, 2010″We Don’t Want a Bunch of Angry Teamsters Showing Up at Our Doors!”The Economic VelociraptorsBy ANDREW COCKBURNWhile President Obama has taken to making obsequious comments about the CEOs of JP Morgan and Goldman Sachs, and how he doesn’t “begrudge” them their enormous winnings, Wall Street has been hard at work doing what it does best: impoverishing people. This month has been the turn of the Greeks and other poorer Europeans. In a nutshell, governments in Athens and elsewhere are being told that they must slash social spending to the bone and shrink their economy or else they won’t be allowed to borrow any more money. Dutiful press reports have dwelled on the concern of “investors” that the Greeks might default on their bonds, with consequent crisis for the Euro and possible disintegration of the European common currency.For “investors,” read Wall Street gamblers – banks, hedge funds and other players. Scenting blood in the water, they have been busily placing enormous bets on whether the Greeks would go belly up or be helped out by the Germans. They do this through the medium of “credit default swaps”, a form of insurance against default by Greek or any other bonds. Typically, this kind of so-called insurance protection will be offered by a pension fund or some similar institution looking to earn a nice income from premium payments.The buys of the protection will be hedge funds looking to make fast money if the insured bonds lose value and the seller has to pay out. Sitting between them is Goldman, JP Morgan, Bank of America or some other big bank who broker the trade between buyers and sellers. Since this market lacks any transparency – the banks have effortlessly crushed congressional initiatives for reform in this area — these spreads and consequent profits are huge.Once everyone has made their CDS bets, the buyers will start beating down the value of the insured bonds – in this case the Greeks. The air has been thick with reports of imminent Greek default, the Greeks’ financial irresponsibility, etc etc. As the value of the bonds decreased, the CDS sellers had to pay out money to the buyers, “posting margin.” This is what Goldman Sachs did to AIG in 2008, thus ensuring the latter firm’s ruin.With Greece “in play” the flow has ebbed back and forth. As the fate of Greece see-saws, both sellers and buys have been making money, as of course have the banks in the middle. None of this has much to do with the underlying condition of the Greek economy. There was no particular reason why Greece should have become a crisis just now, except that it was their turn. Joseph Stiglitz, one of the very few economists worth listening to, has been pointing out that the Greek economy is not in immediate crisis and that this has been a speculative attack, but most business commentators are not paid to report things that way. Instead, the Greeks have been admonished to pull their socks up, cut government spending by firing thousands of public employees (thus exacerbating the recession) and pay their debts.In the hunt for the rich pickings offered by the situation, competition among major powers, ie Wall Street institutions, has been fierce. Someone, for example, told Der Spiegel this week, that Goldman-Sachs had nefariously helped Greece cover up the true depth of its debt situation through creative use of cross currency swaps, which involved “the Greek government issuing debt in yen and U.S. dollars which were than swapped for debt in euros over a specified period of time. After a period of years the currencies will be traded back to the original currency.” Though this would seem like a good deal for the Greeks in the short term, in the long term, reported Speigel it would cost them dearly.The report was clearly inimical to the interests of Goldman. Asked to check whether it was nevertheless true, a former U.S. Treasury official told me that the story, “more smoke than fire,” had been leaked by a Goldman competitor, “Lazard, JP Morgan, Deutsche — take your pick,” adding that “the velociraptors are ripping chunks of flesh out of each other in a fight to the death.” Such wholesome plain speaking is not of course current in the White House, where Obama prefers the term “savvy businessmen,” at least when referring to JP Morgan and Goldman CEOs Jamie Dimon and Lloyd Blankfein in a recent interview with Business Week, to anything redolent of fearsome, carnivorous predators.(Blankfein, according to Andrew Ross Sorkin’s book “Too Big to Fail,” displays a framed Gary Larson cartoon on his office wall. It depicts a father and son looking over the garden fence at a line of wolves entering the house next door. “I know you miss the Wainwrights Bobby,” the father is saying “but they were weak and stupid people, and that’s why we have wolves and other large predators.”)Just when other poorer members of the European family were thankfully watching the Greeks get it in the neck while they escaped, a rumor swept Wall Street that Stanley Druckenmiller, master of the mighty hedge fund Duquesne Capital, was moving on to give Portugal the same treatment. Instantly, credit default swaps, ie bets, against the hapless Portugeese shot up, giving the Greeks a breathing space, before the herd moved on again to mangle the Euro itself.But while the gamblers wreck their havoc on ancient nations, some of them of at least may be facing a comeuppance closer to home. CounterPunchers will recall that when Goldman and others on Wall Street sought to ruin the big trucking company YRCW over Christmas by sabotaging a debt reorganization while betting on the firm’s default and demise – thus eliminating 30,000 jobs – the Teamsters mobilized successfully and forced the offending parties to back off. “We got out of our position in a hurry,” one hedge find trader told me later, figuratively mopping his brow, “we didn’t want a bunch of angry Teamsters showing up at our door.”However, while threatening to mount pickets at the premises of various institutions, Teamster President James Hoffa also contacted the attorneys general of various states, outlining the scheme then underway to bankrupt the firm. “We respectfully urge you,” wrote Hoffa on December 22, “to look closely at these financial firms’ questionable promotion of CDSs for YRCW bonds. CDSs, of course, are essentially insurance products that need strong oversight. However, the CDS issuers are not required to conform to the strict requirements of insurance regulations. We believe almost none of these regulations were followed here. As indicated, these financial firms’ injection of CDSs into YRCW’s bond exchange offer seems calculated to manipulate and collapse YRCW stock and bond prices, destroy attempts to save a large U.S. trucking company, and to otherwise defraud various stakeholders by creating an incentive for bond holders and others to promote the Company’s failure.”CounterPunch has now learned that at least some of the state law enforcement officials contacted by the union are moving to take action. Officials in Pennsylvania, Alabama and New Jersey have taken the matter seriously enough to institute further investigation. New Jersey has called in the SEC, Pennsylvania has put the state Securities Commission on the case, and Alabama is mulling a criminal prosecution.Should someone actually end up in the dock, they will doubtless be able to offer the defense that they were merely acting as “savvy businessmen.” We are all “in play.”.

blindmanFebruary 18th, 2010 at 12:39 pm

http://www.democracynow.org/2010/2/18/nobel_economist_joseph_stiglitz_on_obamas…..JUAN GONZALEZ: Well, Joe Stiglitz, you’ve also urged a second stimulus package, especially focusing on the problems that state governments are going through, because, obviously, as real estate has collapsed, the value of real estate throughout the country has collapsed, that means that property taxes, which are a huge portion of local state revenues, have also collapsed. And this is going to be a problem for years to come, in terms of states being able to balance their budgets.JOSEPH STIGLITZ: That’s exactly right. And the important point is that the states have what are called “balanced budget framework.” That means that the revenues are going down, and they’re going down by over $200 billion a year. As the revenues go down, they either have to cut back spending or raise taxes. This is a negative stimulus to the economy. So the stimulus at the federal level is being offset by the negative stimulus at the state level.Same problem happened in the Great Depression. One of the reasons the Great Depression lasted as long as it did was that as the New Deal kicked in, the states were contracting. And the result of it was that we didn’t really recover for years from the Great Depression..AMY GOODMAN: The latest news in the New York Times about the crisis in Europe, and particularly in Greece, reporting that Wall Street tactics that were akin to what caused the subprime mortgage disaster are being used to enable governments to hide their mounting debts. And what they were talking about was the deal created by Goldman Sachs that helped Greece obscure billions in debt from the budget overseers in Brussels. What did Goldman do? And what do you think of this?JOSEPH STIGLITZ: Well, our banks were very creative in their accounting. They first used this creative accounting to avoid paying taxes, but then they discovered that you could use the same kind of creative—more accurately called “deceptive”—accounting to deceive investors, move things off balance sheet, hide what was going on, and do very well by yourself, even if, in the long run, other people are going to pick up the tab. And in this, in the case of the banks, it was the American taxpayers who’ve picked up a lot of the tab, but also, of course, the shareholders and the bondholders.They then started marketing this kind of deception all over the world. And there are ways that you can move things off balance sheet so that the costs that you’re going to have to pay, years into the future, are not apparent. You see revenues coming in. The particular issue at the time was Greece was trying to get into the EU. It had to satisfy certain conditions about the deficits and the debt. And these were very clever ways of making it appear as if they were actually meeting the criteria, when in fact, of course, the problems persisted.What is so upsetting to many people in Greece and all over Europe—I just came back from two weeks in Europe—is that the banks, after causing the crisis, after the governments having bailed out the banks, having had to spend a huge amount of money to stop a depression or a deep, deep recession caused by the banks, these same banks are now attacking the countries, criticizing them for the deficit that the banks’ irresponsibility helped create, and are trying to manage a speculative attack against these countries, the result of which is they are demanding that salaries be cut, wages be cut, meanwhile saying, “We need to keep our big bonuses. Don’t attack our bonuses. That’s necessary for the working of a market economy.”.JUAN GONZALEZ: And Joseph Stiglitz, finally, the issue of the derivatives market, this ticking time bomb, unregulated, no transparency. Most people don’t even know, even on Wall Street, which particular deals have been made and what they entail. Your assessment of how the Obama administration is moving on the front of bringing some regulation into the derivatives market?JOSEPH STIGLITZ: The derivatives market, let me just emphasize, was very critical in the deceptive accounting in Greece, important in the deceptive accounting that led to the freezing of the credit markets, because no one knew what their financial position was. And you could see what happened in AIG, where one moment it said it had a $10 billion problem, the next moment the taxpayer had to put in $89 billion, wound up $180 billion, money that some of which went to Goldman Sachs, which you mentioned before. We’ll never get that money back. So, those are the dangers that these derivatives can expose. We should have known that, because back in ’98, one hedge fund, LTCM, almost brought down the entire global economy. And so, we should have known the riskiness of that.The Obama administration has not proposed doing anything adequate about these. Some of the new things that the Obama administration proposed in January deal with other problems that, until then, had not been adequately dealt with—the problem of “too big to fail” banks. But the problem of these under-regulated derivatives remains, and therefore the risks remain.Let me just emphasize, a part of this is this lack of transparency. One of the things is the Obama administration is trying to encourage more of the trading to go to standardized products traded on exchanges, but it isn’t really going to force it. And the depository institutions, the “too big to fail” institutions, that we underwrite—we the taxpayers bailed them out—are continuing to write most of these derivatives. So, in the end, these are insurance policies without the kinds of regulation that insurance normally requires, without the kind of careful analysis that insurance normally requires, but at the end, the US taxpayer bears the big losses when these gambles don’t work out. And so, while they’re, in a sense, sold as insurance, not regulated as insurance, they’re really gambling products, but they’re gambling where the potential losses are going to be borne by the US taxpayers. And we just haven’t done anything significant about this.

MAFebruary 18th, 2010 at 4:02 pm

The dollar shall run!!!The Discount window just bumped 25 basis points!!!All the best.Rich Hartmann – Miss America

PeterJBFebruary 18th, 2010 at 4:22 pm

Warning | Warning | Warning : Conspiracy revealed:”It’s one thing to foist a huckster government and a currency of deteriorating value upon an innocent citizenry, but to subvert their confidence in wine? That’s just plain evil.”The Dastardly Deed of Evil:From Bonner and Co @ The Daily Reckoning”A French court yesterday found twelve industry figures guilty of exporting inferior quality wine to the United States fraudulently under the Pinot Noir label. It is believed some 18 million bottles of sub-palatable plonk found their way onto US dining tables before the ruse was uncovered. The unnamed shysters, who pocketed millions carrying out their heinous act, were handed suspended sentences and fines ranging from 3,000 to 18,000 rapidly-depreciating euros.”Odes of The Mouse That Roared? Or a slick Sarkozy move of fundamental French one-upmanship?It is the time of the HereticHo hum’

blindmanFebruary 18th, 2010 at 9:37 pm

repeat / re quote.this seems important. the kind of thing that won’t be sweptunder any carpet and can’t be overlooked but cries out to beaddressed transparently, perhaps redressed as in a grievance…”What is so upsetting to many people in Greece and all over Europe—I just came back from two weeks in Europe—is that the banks, after causing the crisis, after the governments having bailed out the banks, having had to spend a huge amount of money to stop a depression or a deep, deep recession caused by the banks, these same banks are now attacking the countries, criticizing them for the deficit that the banks’ irresponsibility helped create, and are trying to manage a speculative attack against these countries, the result of which is they are demanding that salaries be cut, wages be cut, meanwhile saying, “We need to keep our big bonuses. Don’t attack our bonuses. That’s necessary for the working of a market economy.” j.stiglitz..important word: up-setting.

blindmanFebruary 18th, 2010 at 9:54 pm

important word: up-setting. setup. gall. fishfood. out of touch.grievance. opinion..stop me if you heard this one. the financial sector is supposedlya part of the economy that exists to facilitate economic, real,activity. it is not naturally an external, violent, techno weaponized,parasitic, mindless demon bent on cross border raping of anythingthat has a scent, no? all things being equal i imagine no men willtolerate this for much longer..

blindmanFebruary 18th, 2010 at 10:09 pm

speaking of piigs and flying and gambling and poopadoo andthe connection to the pre-conscious hysterical domain.remember this?http://www.counterpunch.org/hudson02172009.html.February 17, 2009Finance Capitalism Hits a WallThe Oligarchs’ Escape PlanBy MICHAEL HUDSON…The oligarchy’s plans for a bailout (at least of its own financial position)”In periods of looming collapse, wealthy elites protect their funds. In times past they bought gold when currencies started to weaken. (Patriotism never has been a characteristic of cosmopolitan finance capital.) Since the 1950s the International Monetary Fund has made loans to support Third World exchange rates long enough to subsidize capital flight. In the United States over the past half-year, bankers and Wall Street investors have tapped the Treasury and Federal Reserve to support prices of their bad loans and financial gambles, buying out or guaranteeing $12 trillion of these junk debts. Protection for the U.S. financial elite thus takes the form of domestic public debt, not foreign currency.It is all in vain as far as the real economy is concerned. When the Treasury gives banks newly printed government bonds in “cash for trash” swaps, it leaves today’s unpayably high private-sector debt in place. All that happens is that this debt is now owed to (or guaranteed by) the government, which will have to impose taxes to pay the interest charges.The new twist is a variant on the IMF “stabilization” plans that lend money to central banks to support their currencies – for long enough to enable local oligarchs and foreign investors to move their savings and investments offshore at a good exchange rate. The currency then is permitted to collapse, enabling currency speculators to rake in enough gains to empty out the central bank’s reserves. Speculators view these central bank holdings as a target to be raided – the larger the better. The IMF will lend a central bank, say, $10 billion to “support the currency.” Domestic holders will flee the currency at a high exchange rate. Then, when the loan proceeds are depleted, the currency plunges. Wages are squeezed in the usual IMF austerity program, and the economy is forced to earn enough foreign exchange to pay back the IMF.As a condition for getting this kind of IMF “support,” governments are told to run a budget surplus, cut back social spending, lower wages and raise taxes on labor so as to squeeze out enough exports to repay the IMF loans. But inasmuch as this kind “stabilization plan” cripples their domestic economy, they are obliged to sell off public infrastructure at distress prices – to foreign buyers who themselves borrow the money. The effect is to make such countries even more dependent on less “neoliberalized” economies.”….

so.....February 18th, 2010 at 11:49 pm

http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/printRollingstone.comBack to Wall Street’s Bailout HustleWall Street’s Bailout HustleGoldman Sachs and other big banks aren’t just pocketing the trillions we gave them to rescue the economy – they’re re-creating the conditions for another crashMATT TAIBBIPosted Feb 17, 2010 5:57 AM”On January 21st, Lloyd Blankfein left a peculiar voicemail message on the work phones of his employees at Goldman Sachs. Fast becoming America’s pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles. In his message, Blankfein addressed his plan to pay out gigantic year-end bonuses amid widespread controversy over Goldman’s role in precipitating the global financial crisis.The bank had already set aside a tidy $16.2 billion for salaries and bonuses — meaning that Goldman employees were each set to take home an average of $498,246, a number roughly commensurate with what they received during the bubble years. Still, the troops were worried: There were rumors that Dr. Ballsachs, bowing to political pressure, might be forced to scale the number back. After all, the country was broke, 14.8 million Americans were stranded on the unemployment line, and Barack Obama and the Democrats were trying to recover the populist high ground after their bitch-whipping in Massachusetts by calling for a “bailout tax” on banks. Maybe this wasn’t the right time for Goldman to be throwing its annual Roman bonus orgy.Not to worry, Blankfein reassured employees. “In a year that proved to have no shortage of story lines,” he said, “I believe very strongly that performance is the ultimate narrative.”Translation: We made a shitload of money last year because we’re so amazing at our jobs, so fuck all those people who want us to reduce our bonuses.”….”Con artists have a word for the inability of their victims to accept that they’ve been scammed. They call it the “True Believer Syndrome.” That’s sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn’t so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn’t matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn’t going to work, no matter what we do. Sure, mugging old ladies is against the law, but it’s also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.”…

teaching f'piigs to flyFebruary 19th, 2010 at 12:33 am

speaking of pigs and learning to fly from the poke.OR the cat is out of the bag…….”CON #2 THE DOLLAR STORE”In the usual “DollarStore” or “Big Store” scam — popularized in movies like The Sting — a huge cast of con artists is hired to create a whole fake environment into which the unsuspecting mark walks and gets robbed over and over again. A warehouse is converted into a makeshift casino or off-track betting parlor, the fool walks in with money, leaves without it.The two key elements to the Dollar Store scam are the whiz-bang theatrical redecorating job and the fact that everyone is in on it except the mark. In this case, a pair of investment banks were dressed up to look like commercial banks overnight, and it was the taxpayer who walked in and lost his shirt, confused by the appearance of what looked like real Federal Reserve officials minding the store.Less than a week after the AIG bailout, Goldman and another investment bank, Morgan Stanley, applied for, and received, federal permission to become bank holding companies — a move that would make them eligible for much greater federal support. The stock prices of both firms were cratering, and there was talk that either or both might go the way of Lehman Brothers, another once-mighty investment bank that just a week earlier had disappeared from the face of the earth under the weight of its toxic assets. By law, a five-day waiting period was required for such a conversion — but the two banks got them overnight, with final approval actually coming only five days after the AIG bailout.Why did they need those federal bank charters? This question is the key to understanding the entire bailout era — because this Dollar Store scam was the big one. Institutions that were, in reality, high-risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless tap of “free money” by unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.When Goldman Sachs and Morgan Stanley got their federal bank charters, they joined Bank of America, Citigroup, J.P. Morgan Chase and the other banking titans who could go to the Fed and borrow massive amounts of money at interest rates that, thanks to the aggressive rate-cutting policies of Fed chief Ben Bernanke during the crisis, soon sank to zero percent. The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008. “They had no other way to raise capital at that moment, meaning they were on the brink of insolvency,” says Nomi Prins, a former managing director at Goldman Sachs. “The Fed was the only shot.”AdvertisementIn fact, the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent. It was basically a license to print money — no different than attaching an ATM to the side of the Federal Reserve.”You’re borrowing at zero, putting it out there at two or three percent, with hundreds of billions of dollars — man, you can make a lot of money that way,” says the manager of one prominent hedge fund. “It’s free money.” Which goes a long way to explaining Goldman’s enormous profits last year. But all that free money was amplified by another scam:CON #3 THE PIG IN THE POKE ‘”…..separate source here …..[ note: Pig in a pokeFrom Wikipedia, the free encyclopediaPig-in-a-poke is an idiom that refers to a confidence trick originating in the Late Middle Ages, when meat was scarce but cats were not.The scheme entailed the sale of a suckling pig in a poke (bag). The wriggling bag would actually contain a cat (not particularly prized as a source of meat) that was sold to the victim in an unopened bag. The French term acheter (un) chat en poche (to buy a cat in a bag) refers to an actual sale of this nature, as do many European equivalents, while the English expression refers to the appearance of the trick.[1]A common colloquial expression in the English language, to buy a pig in a poke is to make a risky purchase without inspecting the item beforehand. The phrase can also be applied to accepting an idea or plan without a full understanding of its basis. Similar expressions exist in other languages, most of them meaning to buy a cat in a bag, with some exceptions: ]

learn to fly, you pig. or we will fly and eat your poor bacon.February 19th, 2010 at 1:30 am

he goes on to state….CON #3 THE PIG IN THE POKEAt one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the “Rocks in the Box” scam or, in its more elaborate variations, the “Jamaican Switch.” Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it’s baby powder.The scam’s name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he’d miss the switch, then get home and find a tied-up cat in there instead. Hence the expression “Don’t let the cat out of the bag.”The “Pig in the Poke” scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. “All of a sudden, banks were allowed to post absolute shit to the Fed’s balance sheet,” says the manager of the prominent hedge fund.The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed’s own write-up described the changes: “With the Fed’s action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF.”Translation: We now accept cats.

learn to fly, you pig. or we will fly and eat your poor bacon.February 19th, 2010 at 1:30 am

he goes on to state….CON #3 THE PIG IN THE POKEAt one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the “Rocks in the Box” scam or, in its more elaborate variations, the “Jamaican Switch.” Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it’s baby powder.The scam’s name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he’d miss the switch, then get home and find a tied-up cat in there instead. Hence the expression “Don’t let the cat out of the bag.”The “Pig in the Poke” scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. “All of a sudden, banks were allowed to post absolute shit to the Fed’s balance sheet,” says the manager of the prominent hedge fund.The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed’s own write-up described the changes: “With the Fed’s action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF.”Translation: We now accept cats.

learn to fly, you pig. or we will fly and eat your poor bacon.February 19th, 2010 at 1:30 am

he goes on to state….CON #3 THE PIG IN THE POKEAt one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the “Rocks in the Box” scam or, in its more elaborate variations, the “Jamaican Switch.” Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it’s baby powder.The scam’s name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he’d miss the switch, then get home and find a tied-up cat in there instead. Hence the expression “Don’t let the cat out of the bag.”The “Pig in the Poke” scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. “All of a sudden, banks were allowed to post absolute shit to the Fed’s balance sheet,” says the manager of the prominent hedge fund.The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed’s own write-up described the changes: “With the Fed’s action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF.”Translation: We now accept cats.

learn to fly, you pig. or we will fly and eat your poor bacon.February 19th, 2010 at 1:30 am

he goes on to state….CON #3 THE PIG IN THE POKEAt one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the “Rocks in the Box” scam or, in its more elaborate variations, the “Jamaican Switch.” Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it’s baby powder.The scam’s name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he’d miss the switch, then get home and find a tied-up cat in there instead. Hence the expression “Don’t let the cat out of the bag.”The “Pig in the Poke” scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. “All of a sudden, banks were allowed to post absolute shit to the Fed’s balance sheet,” says the manager of the prominent hedge fund.The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed’s own write-up described the changes: “With the Fed’s action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF.”Translation: We now accept cats.

learn to fly, you pig. or we will fly and eat your poor bacon.February 19th, 2010 at 1:30 am

he goes on to state….CON #3 THE PIG IN THE POKEAt one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the “Rocks in the Box” scam or, in its more elaborate variations, the “Jamaican Switch.” Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it’s baby powder.The scam’s name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he’d miss the switch, then get home and find a tied-up cat in there instead. Hence the expression “Don’t let the cat out of the bag.”The “Pig in the Poke” scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. “All of a sudden, banks were allowed to post absolute shit to the Fed’s balance sheet,” says the manager of the prominent hedge fund.The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed’s own write-up described the changes: “With the Fed’s action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF.”Translation: We now accept cats.