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Sovereign Debt Debacle- Coming to a Country Near You?

March 15, 2010

Who Could be Next in Line?


What is going on now with all these troubled sovereign nation’s finances? Really, it is nothing new to those with the inside line. This mounting financial tsunami is just getting started for public consumption and has skewered the PIIGS- Portugal, Italy, Ireland Greece and Spain. The most recent country in the sovereign debt hot seat is Greece. But wait there is more! To those in the USA, please don’t be misled by the lack of critical thinking, or comparisons between Greek’s ongoing sovereign debt crisis and America’s similar position with its looming debt bubble. Heck, we now have Jamie Dimon CEO of JP Morgan Chase warning on March 12, 2010 essentially saying- don’t bother looking over at Greece’s woes, check out good ole California, USA!

Oh yea, he does have a point. Let me have some more of those California IOU’s! So, if you have been paying any attention to the Greek debt crisis which blew up in the fall of 2009, you quickly realize a parallel comparison exists between the USA and even the UK that is eerily similar. Consider the issue not an isolated matter. We are now witness to the dissolution of old global finance structures that are becoming inappropriate in a new, more equitable and balanced world.

In this post you will get a short, crash course in sophisticated, outright sovereign debt market manipulation and some of the outrageous, devious deceptions orchestrated with the help of Wall Street’s finest. All of which was objectively done to “help” improve Greece’s balance sheet starting way back in 2000 to solidify their countries financial qualification and ultimately retain EU membership.

Business as Usual

Worst of all, these practices and other similar activities are seemingly moving on unabated or restrained even today. Come what may…and it will happen in short order. Fortunately the world populace is now waking up to these problems- able to more readily identify fraudulent, non-transparent one-sided dealings to expose these criminal-like activities and demand change. The change envisioned is an economic engine which actually produces tangible, real economic benefits for a large majority of the world’s populace while minimizing or eliminating public debt loads. Read: favorable results for real risks. Not a sort of shadow, casino-like economy where nothing useful is really created.

Take for example sophisticated financial instruments with various acronyms which true, some are useful, while others are outright incubators of deception. How about the one class type, credit default swaps (CDS) enables someone to purchase an insurance policy on something they do not own, and benefit financially when the hypothetically yet obvious (or engineered event) default/loss occurs. Can you buy a hazard insurance policy on your neighbor’s home? Think about that one…and you will get the correct mental image. Talk about moral hazard, the financial industry of late is riddled with this cancerous problem.

What me Worry, why Now?

Back to my point- I believe knowledge of these once publically obscure transactions while common place in the realm of finance, and in unique instances they offer some limited value and purpose, is occurring for a greater reason. It is because we are now living in a time in which one-sided financial activities of the like, can no longer reside hidden in the shadow of darkness. Truth and transparency is triumphing and what better place to begin a cleanup operation- the Financial House.

To get a real taste of the length and depth at which these deceptive practices are commonplace, take a look at this clip below it’s a real eye opener. While the topic is not about sovereign debt, it does focus on the falsifying of balance sheets. In this case the newly released 2,200 page bankruptcy Report of the Examiner (download here) into the cataclysmic failure and collapse of Lehman Brothers reveals in short, it began with cooking their financial statements. Remember Enron? Evidentially some top executives at Lehman must have got their deception education right from the pages of Enron’s history books. I wonder how many of them will soon turn up deceased like those involved in Enron? Let’s see if any prosecutions come of this crew as it appears there is plenty of evidence.

Wall Street Helped Hide Greece’s Crisis


The entire Greek story is quite an interesting one. We won’t go too deep into that hole of history other than to say, Greece’ entrance into the European Union was one of qualifying. As with all potential EU member states, certain financial conditions are imposed in order to be and remain a union member. Key qualifiers for any country’s ability to join as a member of the European Union are that the country in question must have a 3% or less budget deficit of GDP and public debt at 60 per cent of GDP.  Hmm…where does it stand today? The best, recent 2009 estimates are that Greece has a budget deficit of over 12% and in 2010 will have a gross debt forecast amounting to 125% of GDP!

These numbers do not grow overnight even with the most socialist-like liberal spending habits. Especially when considering Greece’s qualification back in 2001 which allowed them to switch into the Euro currency. This recent crisis broke out into public view in the fall of 2009 after the PASOK party (Panhellenic Socialist Movement)  came into power after the October general elections and they got a close examination of Greece’s books and the real balance sheet. How did this happen? With the help of money masters from Goldman Sachs in 2002 they enabled Greece to generate an implied reduction in their debt and generated about $1 billion in funding. The method used, which now is under scrutiny as to whether proper disclosure was and did occur and also Greece’s legitimacy to reduce on paper, their countries mounting deficits. The other issue is- were these schemes blatantly used to outright conceal debt while the country was struggling to comply with the EU membership and currency criteria from its early days when it entered the eurozone.

The Game of Deliberate Deception


Here is the master game plan devised by Goldman Sachs. The transaction consisted of a cross-currency swap of around $10 billion of debt issued by Greece in both dollars and yen. That was swapped into euros using a historical exchange rate, and doing so, implied a reduction in debt that ended up generating about $1 billion of funding. It is purported that Goldman Sachs fees for doing this transaction were $300 million. Magic money manipulation; a monetary magician’s slight of hand. Yes, I know Wall Street did not create Europe’s debt problem. Goldman was there to profit and assist the Greek free spending government to continue into the abyss of debt and to delay its demise.

Exactly how much the currency swap reduced the country’s reported deficit or debt is to me, unknown. Either way, this methodology while common and was used often not just by Greece but even heavily throughout Italy (and others) it was very popular in debt restructuring on paper technically burying a countries true financial health into the dark depths of a complicated, easily manipulated balance sheet. Again the simple analogy here is to imagine that you want to apply for a loan and in order to be qualified or ultimately approved for new debt, you deliberately omit disclosure all of your current or future known liabilities. Total, orchestrated deception.

Goldman Sachs and the other Wall Street firms offering these services are the pre-imminent masters of global finance having created the tools to facilitate all this. Goldman was the same entity that helped get Greece’s government bonds to receive an acceptable credit rating; they went on to sell the bonds to investors after having restructured their balance sheet (some would say cooked the books) to fund the countries widening budget deficit. And in reality, Goldman Sachs knew in advance a day would soon come when Greece could no longer continue the monetary charade and would have to pay up.

Profit on Both Sides

On a side note, those select individuals who knew all about this hidden information bet against Greece’s repayment performance on those bonds which Goldman issued through buying credit default swaps knowing what was to eventually happen. In a simplistic way, this is exactly what was involved in the USA now labeled, the “sub-prime” crisis. Obviously the list of similar activities throughout the world is now long and indeed growing. Just follow the money trail and it will reveal the individuals and often their motives.

The mechanics needed for market manipulation are conceived by and executed by “for profit only parasites” that do not have allegiance to any nation or people. For many of us, attempting to comprehend the actions of these individuals for any other reason than profitable gain regardless of the wake of destruction they leave behind, eludes the best of us. Like swarming insects attacking and devouring crops, there may be a primal need for their presence. But really, who are these people?

I remember to this day, laughing when the Federal Reserve Chairman Ben Bernanke said in March 2007 before Congress this “sub-prime” problem would be contained.

Quote- “At this juncture, the impact on the broader economy and financial markets of the problems in the sub-prime market seems likely to be contained.”

Or, how about this June 2007 quote when Bernanke declared –

“We will follow developments in the sub-prime market closely. However, fundamental factors—including solid growth in incomes and relatively low mortgage rates—should ultimately support the demand for housing, and at this point, the troubles in the sub-prime sector seem unlikely to seriously spill over to the broader economy or the financial system.”

Sure thing, look at where we are today! Still laughing even today and why? Ben is still on the job along with all the others and is now, Time’s Person of the Year! Remember individuals like Ben Bernanke and Treasury Secretary Timothy Geithner (former NY Federal Reserve bank President) are the very same key people responsible for our monetary system including the oversight and regulation of Wall Street and banks. These people are either vastly out of touch and woefully incompetent or, they are following a mastermind created road map which very few know the final destination. More people better wake up soon and connect the dots. The revolving door between the highest and most important positions in Washington DC and Wall Street needs to be locked shut stopping the economic mayhem. Realistically not an easy task but it must be done and can be started relative easily. Awareness and powerful voices demanding and implementing change are the beginning to ending all of this out of control greed for profit and power mongering.

Kicking the Can down the Road


Who do you suppose will be called upon to pay for Greece’s magic money that was created and spent? Well, if you said the Greek populace you’re correct! In all fairness, blame and responsibility can be ascribed to the lack of political willpower in governing the country within reasonable economic means even if that meant being unable to maintain EU membership. And then there is also the Wall Street gang who colluded enabling Greece’s excessive borrowing in the first place. I suspect Goldman will be excluded from directly participating in many eurozone countries finances. Time will tell on that one.

Recently, the United States department of Justice is said to be investigating major hedge funds, believing they may be at fault for this economic fall. Ya think so? Let’s hope this won’t just be a browbeating, lip service charade from another Capitol Hill inquiry. More often of late, they seem like a dog barking behind a fence. See the great clip below from RT America about the real shadow economy players.

But just how is Greece going to be able and ever pay up? First off, they have to expose everything on the balance sheet and even to a degree once done, Greece’s interest rates on their borrowing costs will jump. Yep, more profit justified for those who play this game. Really, who wants to buy more of their debt without imposing tough restrictions on their public expenditures? Greece’s future public debt customers will most likely be other EU members hoping to maintain stability of the euro currency. However for that to happen, some drastic belt-tightening and squeezing of the Greek people will and has already begun to happen. Here comes the public pain with the people paying a disproportionate price. There will be no public bail-outs like that which was done with the banks. Oh no, that is not how these plans are devised. Get ready for the austerity shock treatment- IMF style.

Let’s take a glimpse of what will occur- In order to feed the debt & associated interest monster, Greece will have to cut public expenses massively. That means, huge reductions in the public sector arena such as health care, firing public employees and or salary cuts, pension freezes along with raising taxes and making the non-paying wealthy to finally do so. The list is deep.

The Greek population is not taking this easy and nor should they. To get a flavor of what is happening there and potential for continued upheaval, view this short two minute clip below.

The austerity measures imposed on the people should create a vicious economic cycle feeding upon itself and should lead to increasing their already dismal unemployment numbers. Not to mention social unrest on a growing scale. Take a look at the government’s short and midterm goals to reduce the countries budget deficit:

  • 2010- reduce from 12.7% to 8.7%
  • 2012- reduce below 3% of GDP


Even with the best intentions, these numbers are unrealistic to achieve. But then again, delusion and deception must be the new norm today. The country of Greece’s capacity to pay is not there especially considering the magnitude and speed of the proposed deficit reductions. What next? Sell some assets like the Acropolis of Athens? I sincerely believe these austerity plans like the others are once again doomed to failure and they only delay an inevitable wholesale collapse of a lopsided, antiquated global economic system.

America’s Sovereign Debt Bubble

Both countries economic picture resemble many others in the same situation when you look closely at the numbers. Just remove the names and take a close look at the real numbers. Sovereign debt hangs like a noose around over 15 large countries that are or close to bankruptcy. They will try to appear solvent by keeping two sets of books in a similar fashion to way some companies do. But, there is no more room to run and hide. This situation is unlike the semi-isolated economic turmoil in the US housing collapse because it is global in scope and could very well be the vehicle for implosion.

America is now wrapped up in an inflationary depression with a government unwilling to cut deficit spending and carrying a 10% and growing federal deficit of GDP. This is flirting with bankruptcy disaster. So far the USA has avoided the hangman’s noose, but I suspect it can only be about timing unless drastic changes occur and unfortunately, the current administration seems hell bent on tightening the knot. If history can speak to us clearly, it would suggest we look at all those countries now before us in similar positions and come to conclusions as to what fate may hold. How long can America’s AAA credit rating hold out if we continue to kick the can down the road and not deal with these challenges?

This bubble is an easy one to spot in the USA because its elected leaders have gotten drunk on unsustainable finances supported through the use of cheap credit influenced by the Federal Reserve Bank. The question becomes how talented and capable are these individuals who are responsible for deflating the bubble before it explodes globally?

Like Einstein said-

“We can’t solve problems by using the same kind of thinking we used when we created them.”

Now is time for “new thinking minds” to arise and discard no longer useful economic models for one that eradicates economic disparity and drives to eliminate all potentially negative outcomes. If they expect to squeeze the people to pay, without monumental changes in the status quo system, then government should expect to see the second America Revolution. Together in doing so, we will set things back onto our destined course and help lead the way globally out of this present darkness.

As always- your comments are welcomed and encouraged. If you like what you see and read here at Shift of The Age, be apart of the awareness- share! Be sure to forward, subscribe via RSS feed or email direct to your inbox. Thanks!
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