Greg Palast seems to have answered this question on Sunday, November 6, 2011 in a blistering article written for "In These Times”
Anyone familiar with Greg Palast knows that he "is a New York Times-bestselling author... and a freelance journalist for the BBC...as well as the British newspaper The Guardian.... His work frequently focuses on corporate malfeasance but has also been known to work with labor unions and consumer advocacy groups.”
https://en.wikipedia.org/...
There’s no surprises here as to the “who"- it’s the usual suspects who ended Glass Steagall protections for taxpayer deposits - sadly, of course, during Bill Clinton's presidency.
What’s so interesting about Palast’s 2011 piece is that he delves into the international financial piece of the heist - the repercussions of which are seemingly still being felt today.
"....How Goldman Sacked Greece"
by Greg Palast for In These Times
Sunday, November 6, 2011
This is an adaptation of an excerpt from Vultures' Picnic, Greg Palast's [2011] book.
I'll cut to the indictment: Greece is a crime scene. The people are victims of a fraud, a scam, a hustle and a flim-flam. And--cover the children's ears when I say this--a bank named Goldman Sachs is holding the smoking gun.
In 2002, Goldman Sachs secretly bought up €2.3 billion in Greek government debt, converted it all into yen and dollars, then immediately sold it back to Greece. Goldman took a huge loss on the trade. Is Goldman that stupid?
Goldman is stupid—like a fox. The deal was a con, with Goldman making up a phony-baloney exchange rate for the transaction. Why? Goldman had cut a secret deal with the Greek government in power then. Their game: to conceal a massive budget deficit. Goldman's fake loss was the Greek government's fake gain. Goldman would get repayment of its "loss" from the government at loan-shark rates.
The point is, through this crazy and costly legerdemain, Greece's right-wing free-market government was able to pretend its deficits never exceeded 3 percent of GDP. Cool. Fraudulent but cool. But flim-flam isn't cheap these days: On top of murderous interest payments, Goldman charged the Greeks over a quarter billion dollars in fees.
When the new Socialist government of George Papandreou came into office, they opened up the books and Goldman's bats flew out. Investors' went berserk, demanding monster interest rates to lend more money to roll over this debt.
Greece's panicked bondholders rushed to buy insurance against the nation going bankrupt. The price of the bond-bust insurance, called a credit default swap (or CDS), also shot through the roof. Who made a big pile selling the CDS insurance? Goldman. And those rotting bags of CDS's sold by Goldman and others? Didn't they know they were handing their customers gold-painted turds?
Citibank
‘Risk, shmisk’
You know what the perfect crime is?
It’s the one that’s not illegal.
Sanford “Sandy” Weill must have thought John Dillinger was schmuck.
Weill didn’t bother with a few greenbacks in the bank vault. Weill stole the whole bank. In April 1998, Weill’s company, Travelers Group, an agglomeration of investment banks and other hot financial operations, took over Citicorp. Weill, now running the freshly minted Citigroup, made millions off the deal. The merger was brilliant—and against the law.
While Dillinger, the fool, used fast getaway cars and Tommy guns to avoid the law, Weill simply had the law repealed.
The law was the Glass-Steagall Act, signed by President Roosevelt in 1933. Glass-Steagall prohibited banks that take deposits (“commercial” banks) from merging with “investment” banks. Investment banks, despite the upright name, are financial casinos, which can make high-stakes, high-risk bets on stocks, bonds, currencies, derivatives, weather, whatever.
Glass-Steagall was based on a deal FDR made with banks during the Great Depression: The government would guarantee savings accounts, but the banks could not then use those government-backed deposits to finance loading up a poker table with chips to play a two-pair bluff.
Of course, the world would be a much happier place today, and Greece would not have burned, if Weill and his fellow banksters had simply taken a trillion dollars and blown it on a weekend in Vegas.
I’ve done a quick calc on Weill’s deal that broke the law (I mean, literally shattered it). The stock of the combined Weill companies popped up by $24 billion on the day of the announcement. Nice. The fools and the fleeced were told the combine “created value.” The hell it did. It created a government guarantee for Sandy’s casinos. The American public, in effect, put up insurance valued at $24 billion of Citigroup.
Weill’s bank heist was an inside job. Removing the law that formed the rock-solid foundation of America’s financial structure would require a lot of demolition work by U.S. Secretary of the Treasury Robert Rubin, who recommended that Congress repeal Glass-Steagall and oversaw the Treasury as it helped to relax similar global financial regulations. Bob Rubin’s jackhammer on Glass-Steagall was effective—the law’s demolition was signed on November 12, 1999, just four months after Rubin left Treasury and just two weeks after he joined Sandy Weill to help run Citigroup.
Rubin picked up $126 million in payments from Sandy’s now-legal operation. That was not a payoff. That was compensation. There’s a difference: six letters. Count ‘em.
When Rubin left the Treasury for Citi, he put his protégés Summers and Geithner in charge; Summers to take Rubin’s post, and Geithner sent to Geneva on a very special assignment.
Soon Goldman Sachs et al. were cranking out new derivative “products” faster than bed sheets from a whorehouse laundry. Some gray-hairs worried about the risk. Risk, shmisk. With explicit and implicit government guarantees, the bankers were ready to go double-or-nothing on insecure securities.
Summers, like Rubin before him, body-blocked all attempts to regulate the derivatives market.
Geitner, Summers, Rubin, Weil
So, who lit the fires in Greece?
Luckily, some birdies flew over our office and dropped several papers through the transom. One memo, dated November 24, 1997, was written by Assistant Treasury Secretary for International Affairs Tim Geithner to Deputy Secretary Larry Summers.
Geithner wrote:
As we enter the end-game of WTO financial services negotiations, I believe it would be a good idea for you to touch base with the CEOs of the major U.S. banking and securities firms which have been closely following the WTO financial services negotiations. I suggest you contact, via phone call, the following firms individually.
Geithner advised Summers to call Bank of America’s David Coulter, Citibank’s John Reed, Chase Manhattan’s Walter Shipley, Goldman Sachs’ Jon Corzine and Merrill Lynch’s David Kamansky.
But what did Geithner mean by “the end-game” that this list of illustrious money managing CEOs should be consulted on? Let’s piece together how the game began. In 1997, there were two burning questions for Summers, Geithner, Rubin, Weill and the gang.
The first was, “What if shit happens?” What if the decriminalized trade in weird securities goes bad? Where can the United States dump its toxic assets?
Rubin’s deputy secretary, Summers, would apply the same solution he had suggested earlier, in 1991, regarding chemical toxins. Then chief economist of the World Bank, Summers wrote a memo stating that poor nations are “UNDER-polluted” (his own caps), so the West should dump more toxins there. When the memo leaked, Summers said it was a joke. It was certainly a joke, but it was also, under Summers, World Bank policy. Summers would make the rest of the planet swallow toxic financial assets. Let Ireland, Brazil, Portugal and Greece pay cash money to take on the U.S. bankers’ risk.
The second question for the bankers was, “How do we bust down financial rules across the planet?” It was not enough to erase the laws against speculating with bank deposits in the United States if it was still a crime to do so in Brazil, India, Spain and Greece. In most nations, betting government-guaranteed savings accounts on funky securities remained verboten.
What to do? You can’t engineer enough coup d’états and install General Pinochets everywhere. So then, how to change the laws of 152 nations with a single coup? Treasury called a meeting.
From the memos, it appears there were little gatherings of Treasury with the five CEOs mentioned above whom Geithner had urged Summers to consult. How could they make 152 nations bust apart their banking laws and allow purchases of U.S. toxic assets?
The answer was to take a minor trade treaty, the Financial Services Agreement (FSA), and turn it into the new finance law of the planet. In their closed little gatherings, this bankers’ roundtable rewrote the FSA, with protocols forcing every nation to remove restrictions and old-fashioned safe-banking regulations. The rewritten agreement would require every nation to allow trade in new financial products, whether magical or toxic. It would blow apart any nation’s laws restricting foreign bankers.
The agreement, once signed, would trump any attempt by any Congress or Parliament to restore protections. The agreement also dictated that, once demolished, the barriers could not be rebuilt. Return to regulation, called “claw-back,” would be severely punished. Any resisting nation would be put on the economic wheel and broken.
In 1997, Assistant Treasury Secretary Geithner was sent to Geneva, to WTO headquarters, with this new law in his diplomatic bag. He was assigned to inform the ambassadors of all 152 nations, no exceptions allowed, that they would have to sign it. Or else.
Or else what?
Sometimes, people—and nations—have to eat shit. But no one orders it from the menu. The waiter has to hold a gun to your head.
If a country wanted to trade with the United States, it would have to buy the bankers’ financial “products.” It was a brilliant idea. If a nation wanted to sell American goods, they would have to swallow American bads—the derivatives, swaps and all the other exotica coming out of the mad bankers’ laboratories. Furthermore, Citibank, JP Morgan and other banks would be allowed to jump into these nations’ markets and suck out capital at will. Local banks would be deregulated.
Geithner headed off to the WTO in Geneva, and when I was passed a copy, it was still smoking.
China
Geithner wrote about an end-game, but what game were they playing? World Trade negotiations used to be about trade in goods—you know, my computers for your bananas. But the bankers, through the mucked-with Financial Services Agreement, had switched the game board.
The juiciest target of the new FSA would be China. China wanted to sell us everything we used to make ourselves. The United States would agree to let their stuff in, but in return, China would have to join the WTO, sign the treaties, and buy what America makes now: banking “products.” China would have to let Citibank and JP Morgan set up shop in Shanghai.
In effect, U.S. manufacturing jobs would be sold for the bankers’ right to gamble in the new market. The score? During the last decade, U.S. multinationals shed 2.9 million employees in America while increasing their foreign workforces by 2.7 million.
In May 2010, the end-game ended for Greece.
The new financial products were packaged, polished to a shine and sold to government pension funds all over the planet. The bankers sold blind sacks of sub-prime mortgages, sliced and mixed up, as Collateralized Debt Obligations (CDOs) and other fetid concoctions. The Financial Services Agreement was rockin’!
But when opened, buyers found the bags were filled with financial feces. Government pensions and sovereign funds—from Finland to Qatar—lost trillions. The bags were toxic to bank balance sheets and several failed. In most cases, however, bankers could get a refill of capital juice from governments fearful of full-bore financial collapse. Re-funding banks meant de-funding economies: pension cuts, salary cuts, all the things that bring an economy to its knees. And sets it on fire.
When Bankers Gone Wild slammed the planet into recession, Greece’s main industry, tourism, lost two million visitors who were too broke, too panicked, for beach party vacations and ouzo.
And the more Greece lost, the greater “the spread.”
A spread is the extra interest demanded by speculators and banks to insure against a nation’s bankruptcy and default. When sold as a derivative, the bankruptcy insurance is called a credit default swap (CDS).
How could that happen?
In 2001, investment bank Goldman Sachs secretly bought up $1.4 billion in Greek government debt, converted it into yen and dollars, and sold it back to Greece at a big loss. Goldman isn’t stupid. The deal was a con, with Goldman making up a phony-baloney exchange rate for the transaction, hiding the Greek debt as an exchange rate loss, and working a scam to get repayment of the “loss” from the government over time at loan-shark rates. Through this crazy and costly legerdemain, Greece’s right-wing free-market government was able to pretend its deficits never exceeded 3 percent of GDP.
Cool. Fraudulent but cool. Fraudulent but legal. Read your Financial Services Agreement.
Flim-flam isn’t cheap these days: On top of murderous interest, Goldman charged the Greeks more than a quarter billion dollars in fees.
And those rotting bags of CDOs sold by Goldman and others? Did they know they were handing their customers gold-painted turds? Well, in 2007, at the same time banks like Goldman were selling sub-prime mortgage securities to Europeans, the firm itself was betting that the securities they created were crap. That’s right: Goldman shorted the securities it was selling, and picked up half a billion dollars on the bet. Now, if General Motors built a car they knew would fall apart, would the company be praised, as Goldman has been, for the brilliance of offloading the junkers to unsophisticated rubes?
So Greece went down. It was the spread itself, the premium for the bankruptcy insurance that put Greece into bankruptcy. It’s as if a fire insurance company set fire to your house and then charged you higher premiums because you had a fire.
"This essay was adapted from Vultures’ Picnic: In Pursuit of Petroleum Pigs, Power Pirates, and High-Finance Carnivores (November 2011, Dutton)."
"Greg Palast is the author of the New York Times bestsellers The Best Democracy Money Can Buy (2003) and Armed Madhouse (2007), and co-author of Democracy and Regulations: How the Public Can Govern Essential Services (2003). Palast has won numerous awards for his investigative journalism. His stories have been published in many newspapers and magazines, as well as broadcast on the BBC and Democracy Now! His website is at www.GregPalast.com."
I understand that this essay was written over 4 years ago.
I have made an assumption that we are still seeing the fallout from the near destabilization of the world financial system by the too-big-to-fail financial institutions whose activities are described here by Palast.
I also acknowledge that I have excerpted a large portion from Palast’s essay. However Palast himself published this freely as an into to his 2011 book “Vultures”. I have liberally credited Palast, his book and his work. I think that on balance he is fairly credited here.
If you wish to read the complete article here is the link:http://www.political-analysis.org/...