Wednesday, May 26, 2010

Bailing out the banksters (again)

Lest anyone think that the crises in the Eurozone is about setting wasteful governments on a path to honest prosperity, this piece describes the real beneficiaries of these bailout schemes.
Who are the real winners in Europe's bailout?
It's supposed to be the people of Europe's poorer nations. But it's actually rich countries and their banks
BY JOHN TALBOTT
On Sunday, the European Union and the International Monetary Fund announced they were creating a $955 billion fund to rescue eurozone economies that find themselves in financial peril. This announcement came less than five days after the EU had decided to make $140 billion available to Greece to aid in its recovery.
What few people realize is that the banks holding a substantial portion of Greece's $430 billion of government debt are not being asked to take a single dollar haircut to their investment. This is highly unusual for restructurings that involve the IMF. Typically, to receive IMF funding, a country must engage in not only budgetary and fiscal tightening, but also haircuts to the banks and other debt investors. The idea that companies and countries can restructure without debt investors losing a penny is a relatively new phenomenon. Hank Paulson and Ben Bernanke pretty much invented it when they bailed out Fannie Mae and Freddie Mac, Bear Stearns, Citibank, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bank of America, Morgan Guaranty and AIG and assured that all of their creditors were paid off at 100 cents on the dollar. And the Greek government debt works out to almost $170,000 per household, which, by definition, is unsustainable and needs restructuring. 
People may think that the beneficiaries of this EU largess are the poorer countries of Europe and their people, who have suffered through high unemployment and domestic economies weakened by the crisis. But if the banks lending to countries such as Greece, Portugal, Ireland, Spain and Italy are going to be repaid in full from the proceeds of these EU and IMF programs, then maybe we need to rethink who actually is benefiting from these programs. This is not lost on the people of Greece, 100,000 of whom took to the streets last week to protest cuts in their government's budget, which was part of the Greek bailout plan. Nor is it lost on Wall Street: on Monday, European bank stocks shot up an average of 20 percent -- a sign that traders are well aware of who the primary beneficiaries of the bailout plan will be. more

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