MERKEL BLASTS BANKS

The German Chancellor, Angela Merkel, has strongly criticized the activities of merchant and investment banks yesterday. Saying it was "scandalous" that they could contribute to the deficit of Greece, then help to mask it and thus provoke a crisis in the entire euro area. And she recalled that Germany expected significant efforts from the Greeks to reduce their deficit.

"It is a scandal if it turns out that banks which have already led to the brink, has also participated in the falsification of statistics Greek budget," said Merkel in a speech in the political land (regional state) of Mecklenburg-Vorpommern (East). And she stressed the need for all countries in the euro area to calculate their budget the same way to avoid destabilization of the common European currency.

 Several newspapers have accused the bank Goldman Sachs have enabled the Greek State to disguise the reality of its debt. Merkel also defended the euro, arguing that Germany would had "experienced more turbulence" during the economic crisis last year if it had not adopted the common currency. "Greece must now make substantial savings and I am glad that the Prime Minister of Greece, in agreement with the European Central Bank and the European Commission is working on," she added

GREEK CRISIS REVEALS HOW BANKS MAKE HUGE PROFITS BY HIDING DEBT

GREEK CRISIS REVEALS HOW BANKS MAKE HUGE PROFITS BY HIDING SOVEREIGN DEBT

Recent revelations about the role played by the supposedly prestigious U.S. bank Goldman Sachs in the Greek crisis showed some hints of financial chicanery, based on flaws in the regulatory process and opaque products which generate huge profits. The only purpose of such products is to deceive and conceal.

           According to American newspapers The New York Times and Risk Magazine, and the authoritative German magazine Der Spiegel, Goldman Sachs, has enabled the Greek State to disguise the reality of its debt by nefarious means. In 2002, on the advice of the bank, Athens has borrowed one billion euros by using a complex financial product that allowed them not to include this in their accounts. The bank had advised the Greek Government to have it disguised as a long-term debt.

           This device, then considered legal, allowed Athens not only to meet the requirements of the Stability Pact of the eurozone, but also to extend the deadlines for repayment of its debts. According to the Financial Times, the agreement between Goldman Sachs and Athens, this transaction must remain secret and only be reported in the accounts until the following year.

           "Goldman Sachs recommended that the Greek bank use derivatives to try to stagger the gaps", said Sophie van Straelen specialist Hedge Funds in Asterias, a company analysis on these hedge funds. She said the bank "has somewhat masked part of the Greek debt".

          "These devices are now highly prevalent. These transactions were not made to hide debt, but to postpone it until later," says Dusoulier Pierre Antoine, President France Saxo Bank. He said it is "normal to make the bride more beautiful before making a transaction.

           For the Greek Finance Minister George Papaconstantinou, the operation was "legal at the time, even if it no longer is today". But according to the spokesman of the party of German Christian Democrat Angela Merkel, "Goldman Sachs has violated the spirit of the Maastricht Treaty, although it is unclear whether the law violated." Beyond Goldman Sachs are listed the various financial products designed by investment banks to draw juicy commissions which allow states to beautify their finances.

            Of course the ratings agencies, Moody's Fitch and Standard & Poor, unsurprisingly, remained ignorant of the manoeuvre and continued to issue ratings based on flawed information, although that has never stopped them before.

MANY COUNTRIES USE THE TRICK?

           Many countries in Europe have used various subterfuges, which do not violate European regulations, to finance their debt. The banks offer such States a method of using state assets to secure government bonds, which can not recognize them in the national accounts. A bank encourages such countries to e.g. securitise its obligations to future airport taxes to be levied.

GREECE HAS TWO DAYS TO EXPLAIN TRICKS TO HIDE DEBT

 Greece has only days to explain its use of complex financial deals that it used to mask debt and just a month to prove that its drastic budget cuts go far enough to reassure markets and EU governments. Olli Rehn said Tuesday that he wanted the Greek government to supply answers by Friday on how it used currency swaps and how that affected debt and deficit figures.

          EU finance ministers on Tuesday also gave Greece a deadline of March 16 to show that it can make big spending cuts to bring its deficit down from the EU's highest, 12.7 percent of economic output, to 8.7 percent this year. Greece says it isn't asking for financial help and won't need any _but it is facing a credibility crisis as a Feb. 1 report commissioned by the Greek finance ministry warns of «significant debt revisions» for 2009 statistics due to swaps, debt to suppliers and state-guaranteed loans that may default.

          The report said some swaps are now «being done in order to transfer interest from the current year to the future, with long-term loss to the Greek state.» Rehn said «it is clear that a profound investigation must be done on this matter,» promising that he would check to see if all rules were respected. «If it turns out that there is such kind of securitization of swaps that are not in line with the rules of the time, then of course we would need to take action,» he said.

          The EU can take Greece to court, under threat of daily fines, to change its statistics methods. It is already threatening legal action for Greece's failure to report accurate public finance figures last year. Papaconstantinou said Monday that such swaps were legal when Greece used them and that it is not using them now and will stick to EU statistics rules on new financing deals. Papaconstantinou also said Greece was not alone among EU nations in using such deals.

BANKS UP TO NEFARIOUS TRICKS

          Rehn said he was not aware of similar problems with other countries but that «this has still to be verified.» Rehn also took a shot at the investment banks that advised Greece to mask debt. Reports in The New York Times and Germany's Der Spiegel said that Greece used U.S. financial institution Goldman Sachs to engage in the swaps. «I think the banks themselves should also ask, not least after the financial crisis, if this has been in line with the code of ethics,» he said.

          Traders' fears that Greece might not make debt repayments increased Tuesday, with the spread of the Greek government bond widening to 3.35 percentage points against the benchmark German bond. The spread was below 3.00 points last week on hope of a detailed euro-zone bailout plan.

USA MAY HAVE A BIGGER DEBT PROBLEM THAN GREECE

           It's bad enough that Greece's debt problems have rattled global financial markets. In the world's largest economic and military power, there's a far more serious debt dilemma. For the U.S., the crushing weight of its debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario _a full recovery and a return to prerecession employment levels.

         The government already has made so many promises to so many expanding «mandatory» programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained. Take Social Security retirement benefits, Medicare health coverage for the elderly and other entitlements.

           Add in interest payments on a national debt that now exceeds $12.3 trillion. It all will gobble up 80 % of all federal revenues by 2020, government economists project. That doesn't leave room for much else. What's left is the entire rest of the government, including military and homeland security spending, which has been protected and nurtured by the White House and Congress, regardless of the party in power.

RATING DOWNGRADE COULD MAKE THINGS EVEN WORSE 

          The U.S. debt crisis also raises the question of how long the world's leading power can remain its largest borrower. Moody's Investors Service recently warned that Washington's credit rating could be in jeopardy if the nation's finances didn't improve. Despite election-year political pressure from voters for lawmakers to restrain spending, some recent votes suggests that Congress, left to its own devices, probably isn't up to the task of trimming deficits. 

          Both the Obama administration and Democratic leaders have put job creation ahead of deficit reduction for now. The Senate faces an important vote after it returns on Feb. 22 from its President's Day recess on a bill intended to stimulate job growth. The legislation offers a $13 billion payroll tax credit for companies that hire unemployed workers, including an additional $1,000 tax credit for workers retained for a full year.

1.3 TRILLION DEFICIT IS BEST-CASE OUTLOOK  

           Proposed belt-tightening steps by President Obama, including a freeze on some non_defence, non_entitlement spending, would make only a small dent in the mountain of debt. The budget he submitted to Congress this month proposes record spending of $3.8 trillion for 2011. Taxes in next year's budget will support only $2.5 trillion of that spending, leaving $1.3 trillion to be borrowed.

           The president's budget is a best-case outlook, from the administration's vantage point. It doesn't take into account future liabilities from the growth of entitlement benefits and is based on projected economic growth that depends on a solid recovery. It assumes Congress will pass all of Obama's initiatives, including spending cuts and tax increases previously rejected by Congress.

          Congress already has rejected a bipartisan deficit commission that could have forced Congress to take painful steps on tax increases and entitlements. The commission would have been modeled on one that makes military base-closing decisions, forcing Congress to take up or down votes.

WORDS, COMMITTEES AND OTHER FORMS OF INACTION 

            The Senate turned aside the legislation last month after some original Republican supporters jumped ship once Obama endorsed the plan. Proponents say this type of commission is the only way to make painful debt decisions. Obama says he'll create a bipartisan commission by presidential order instead. «In the end, solving our fiscal challenge _so many years in the making_ will take both parties coming together, putting politics aside, and making some hard choices about what we need to spend, and what we don't,» Obama said in his weekly Saturday radio and internet address. Still, his commission wouldn't have the power to force a congressional vote. Obama's call for fiscal austerity came at the same time he signed legislation lifting the cap on government debt from $12.4 trillion _which is close to being breached_ to $14.3 trillion to permit more borrowing.

            The same law puts in place new budget rules praised by deficit hawks that would require future spending increases or tax cuts to be paid for with higher taxes or other spending cuts. «After a decade of profligacy, the American people are tired of politicians who talk the talk but don't walk the walk when it comes to fiscal responsibility,» Obama said. It's not clear when the debt's day of reckoning will arrive. But the overall national debt over the next few years will rise to 100 percent of the gross domestic product _a level viewed as alarming by the IMF and international economists. The Social Security system, the biggest social spending program, has begun paying out more in benefits than it collects in payroll taxes.

           For the past quarter-century, Social Security had produced a surplus that helped finance the rest of the government. Medicare, the health care program that now covers 45 million elderly and disabled people, is in worse shape. It's been paying out more than it takes in since 2008 and its trust fund is projected to run out of money in 2017.

           Carmen Reinhart, an economics professor at the University of Maryland and a former IMF official, suggested the nation's fast-growing indebtedness may not have a visible impact at this point on ordinary Americans. But some day it will pounce. «One thing we can say with a fair amount of certainty,» she said. «We never know when the wolf will be at our door. The wolf is very fickle and markets can turn very quickly. And a high debt level makes us very vulnerable to shifts in sentiment that we cannot predict.»

WHAT ARE CAMERON AND UKIP UP TO?

          Whispers abound that David Cameron and UK Independence Party Leader Nigel Farage have made a highly dubious non-agression pact. The rest of UKIP are unaware that Farage intends to sell them down the river.

          Farage has agreed with Cameron that UKIP will withdraw their candidates from the Tories' top 40 target seats in exchange for 'assistance' in unseating John Bercow, the Speaker of the House of Commons, in his Buckingham seat. Farage has also intimated to Cameron that if he does not win against Bercow he will abandon UKIP and join the Tories. Cameron is apparently mulling over how he can give Farage a peerage if he delivers on his deal.

          Despite a long-standing convention that the Speaker is outside of party politics, and not challenged for re-election, Farage has broken the convention and is standing against him. He will thus be the only 'credible' alternative candidate as Labour and the Tories won't be contesting the seat.

         It appears that Cameron is very happy to covertly back Farage so as to get at Bercow, who many Tories suspect of being a fellow-traveller of the Blairites. There are suggestions that Farage has got some financial information that may be embarasing for Bercow and could be used in a dirty-tricks campaing at the general election.

GREEDY BANKERS' SNOUTS STILL IN TROUGH

UK BANKER BONUSES AND  SALARIES SURGE

          Bankers in London have received average bonus increases of 40 percent this year and most have also received a jump in base salary, according to a survey, signalling that attempts to restrain payouts are failing. EFinancialCareers, a career website network for financial workers, said 57 percent of 694 UK banking and finance professionals quizzed about their 2009 payouts said bonuses had risen on average by more than 100 percent -- taking the industry rise to two-fifths of 2008 payouts.

          Nearly two-thirds of those asked said they had also received a base salary rise 26 percent on average last year. Employees in private banking, trading and debt/fixed income received the highest bonuses, while those working in risk management, equity capital markets and commodities saw the largest year-on-year increase in payouts, that more than double depressed 2008 levels, eFinancialCareers said.

           Britain has attempted to halt a bonus culture blamed for helping sow the seeds of the credit crisis by imposing a 50 percent tax on bank bonuses over 25,000 pounds, banning long-term guaranteed bonuses and urging banks to spread bonuses over three years to discourage short-term decision-making. But respondents noted little change in how bonuses had been structured. Almost 70 percent said they received all their bonus in cash, 19 percent said a part was deferred and 3 percent said some could be clawed back -- similar to 2008.

           Most people who did not receive a higher bonus put this down to the performance of their firm, according to the survey. Banks in Europe are in the process of informing staff of their bonuses for 2009 as politicians and the public call for restraint after many banks were bailed out by taxpayers.

          But despite the salary and bonus rises, the survey said almost half of those asked said they were dissatisfied with their award amid concerns over an increasingly harsh tax regime for high earners. Forty-one percent said they "intended to seek work outside the UK" because of mounting taxes, the survey said.

I'll volunteer to drive them to the airport.

WHY GREECE AND WHY NOW?

       THERE IS SOMETHING PROFOUNDLY SUSPECT IN THE ROLE OF CREDIT RATING AGENCIES ACTING AS THE SHOCK TROOPS OF TURBO-CAPITALISM

By TERRY MOORE

      Only a few short weeks after heavily defeating a right-wing incumbent government, Greek socialists find themselves staring into the political and economic abyss. How has it come to this? Why is it now that Greece is shown to be economically bankrupt with burgeoning deficits and with almost universal clarion calls from international organisations for Greece to savagely cut its public expenditure.

            How did US-based credit ratings agencies such as Moody's, Fitch and Standard & Poor, achieve the power to strike down sovereign Governments' economic policies simply by downgrading their ratings of a specific country's government bonds. What is it about central bankers that they appear incapable of standing up to the nefarious credit rating agencies' and their hold over market-makers in New York, London and Tokyo.

            Furthermore, why is that socialist governments are the primary victims of  the current negative speculation in the international bond markets which is costing them vast sums in extra credit costs. The very same funds which should be used to alleviate the economic crisis in countries such as Greece.

            One extremely perverse outcome of the current situation is the the self-same credit ratings are experiencing a crisis of confidence, with heavy criticism of their failure to spot (the private sector) problems that led to the global financial crisis, as well as suffering from falling revenues and rising compliance costs. Yet these self-same arbiters of international money markets are now brazenly undermining the public finances of several countries and risk a double-dip recession in Europe.

            The behaviour of the credit rating agencies over the past 20 years is one of an incestuous relationship with many dubious individuals and companies as well as well-founded criticisms of the methods they employ to maximise revenues. In addition there are numerous criticisms of sharp practice  and allegations of outright blackmail. For example, Moody's has been caught out continually downwardly negatively rating a massive German Re-imsurance company simply because the German company didn't see why it should pay Moody's seven-figure sums when it was already paying two other credit rating agencies for the same service.

            These are the ratings agencies that continued to give sub-prime mortgage aggregation vehicles a triple AAA rating even as the US property market went belly-up in 2007. The collapse of multi-billion dollar businesses such as Enron and World Comm happened completely under their radar. They even rated Japan as a bigger risk than Botswana for a short time at one stage.

            Is it just coincidence that Spain and Portugal are the latest targets of the ratings agencies and currency speculators as their economies and public expenditure levels are heavily criticised in international currency markets. The common threads that unite the three countries is that they are socialist governments, they are members of the euro-zone and all three have recently seen off attempts by the centre-right to win power.

            Whilst the centre-right have won power in France, Germany, Italy, Poland, Sweden, and most of the new Member States, Spain, Portugal, Greece and the UK are the socialist administrations that have bucked the trend. It is surely not coincidence that the three members of the eurozone and the UK are the countries that are in the speculators sights. Whilst the centre-right Government in Ireland escapes criticism despite having the worst public finances in the euro-zone.

            Italy under its centre-right coalition government has public sector debt at a level of 114% of    Gross Domestic Product (GDP) whilst Greece's is 112%. Spain at 56% and Portugal at 77% have public debt to GDP ratios lower than the Eurozone area average, yet why are the centre-left led governments suffering so much more at the hands of international capital.

            Let blame be cast where it should be in Greece, with the centre-right heavily responsible for deceiving international supervision. Whilst there has long been suspicion of the methodologies utilised by Greek economic statisticians, the national statistics produced under a Greek Conservative  Government have become as reliable as a Fleet Street journalists expenses claim.

            A budget deficit of 12.7% of Gross Domestic Product is clearly unsustainable. Whilst state pensions at a level of 96% of pre-retirement earnings are clearly unsustainable, especially with an ageing population.

            There has to be a day of reckoning in Greece and it appears that the public sector will pay a heavy price.  Not all of this is undeserved, the Greek public sector has become bloated with most appointments and promotions heavily dependent on party affiliations coinciding with the respective parties holding political power.

There is a long history of tax evaders not fairly contributing to the Greek Treasury.  However, freezing the wages of public servants is not necessarily a wise mood. For a recovery programme that is heavily dependent on ensuring that the State starts to maximise its revenues after years of massive tax-dodging levels, it is perverse that the Government will be freezing the pay of the very people who will be central to their plan, i.e. tax collectors.

            For many years Greece has also suffered at the hands of dynastic politics at the national level. The Papandreou family has controlled the leadership (through the PASOK party) of the centre-left for many years and the Conservative New Democracy movement the plaything of the Karamanlis family. The sins of the fathers really have verily been visited on their sons.in this instance.

            The unlikely external saviour of socialist principles in Greece may actually be its membership of the eurozone. Such membership is also shoring up the defences of Spain and Portugal in the face of avaricious currency speculators. Taking on the European Central Bank is a markedly different beast than Norman Lamont's Tory Treasury. When push comes to shove the European Union and the European Central Bank will simply not let its eurozone members be picked off one by one.

            Whilst Germany insistence on a 'no bale-out' clause for all eurozone members means that there will be no transfer of direct funds between e.g. Germany or France and Greece, the parallel membership of the European Union will mean that Greece will get the financial support it needs to ensure its economy does not collapse completely.

            Whilst, Greece will have to swallow a bitter pill and undertake a fundamental reform of its public sector (unfortunately long overdue), it's EU membership is likely to act as a partial salvation and  shield it from the worst consequences of the seedy activities of financial carpetbaggers skulking in the dark recesses of the global financial marketplace.

            It is also true that Greece almost certainly should not have been allowed to join the eurzone in the first place because of its utilisation of extremely moody national statistics, it will actually be the eurozone that will shield it from the worst excesses of free market ideologues that would have won out if Greece still had the drachma and would have had to have gone cap-in-hand to the International Monetary Fund.

            Finally the pernicious role of credit rating agencies in assessing sovereign debt should be the subject of investigation by the EU and the US Securities Exchange Commission. Their is emerging a great deal of evidence that they are abusing their dominant positions, they are acting as the shock troops of turbo-capitalism and that, true to the perennial role of capital in society, they are only motivated by their own bottom line at the expense of public welfare.