An Institutionalist take on the Greek elections

I am about to move again.  Moving is always difficult but this time, I will wind up living closer to the childhood home of Thorstein B. Veblen than at any time before in my life (less than 10 miles).  So I have been thinking about the political and social forces that shaped his worldview and speculating on how he would view the upcoming Greek elections.

The BIG economic calamity of Veblen's life was the decision in 1873 for USA to go back on the Gold Standard.  Veblen, who had been born in 1857 would have turned 16 that summer.  This monetary decision would devastate midwestern agriculture and his father, who had grown quite prosperous by then would see his economic situation deteriorate over the next 20 years so that by 1893, he would leave agriculture altogether and NONE of his children were interested in the farm. In those twenty years, virtually ALL political activity in the agricultural areas of USA was directed towards reversing the "Crime of '73."  This included the formation of political parties such as the Greenback Party and the People's Party and organizations like the National Farmer's Alliance and the Knights of Labor.  So unlike the Marxists, Veblen's political thinking was formed in the crucible of monetary arguments.

So it has been damn interesting to watch a lefty alliance in Greece with deep historical ties to Marxism attempt to formulate policy responses to a banking crises.  It has also been fascinating to watch how a genuine Institutionalist like Michael Hudson reacts to the various "Socialist" responses to the Euro crises.  Like me, he considers them hopeless—which they sort of are.  Up until now, the Socialists have not (to my knowledge) questioned the basic assumptions that govern the creation of money and who should be paid for that act—the very question that drove a zillion passionate debates in rural USA during Veblen's most formative years.  So whether or not a modern Marxist like Alexis Tsipras wins the election on Sunday is only half of a very interesting question.  The other half is whether he understands the issues clearly enough to do anything meaningful about the terrible situation in which Greece finds itself.

Europe’s Financial Elites to Greece: Drop Dead

By: Scarecrow Saturday June 16, 2012

The New York Times has a lengthy, heart rending account of the suffering Greeks are going through as their economy collapses, money disappears, businesses close, and their ability merely to survive faces increasing risks. More here from The Guardian on the collapse of health care system.



If there had been an equivalent natural catastrophe — a massive tsunami or earthquake — the response to the human suffering on this scale would, one hopes, be entirely different. Whatever else you do, you save the people first.

But this human catastrophe — with echoes in Spain, Portugal, Ireland — was entirely man made by Europe’s financial elites. Even worse, those who caused it were not held accountable, those responsible for preventing or ameliorating its effects are making it worse, and some of the elites are insisting the victims deserve their lot. We hear the same arguments here.

Europe’s political and financial elites have spent the last month trying to influence Sunday’s elections in Greece. But in the last week the message has radically changed: Before, the message pretended Greece could survive; but now Europe has written off Greece and condemned it to suffer and fend for itself. One wonders what the elites think this message conveys to the next inevitable victims of Europe’s failed experiment.

The public version of the month-long unified message, coming from everyone in German Chancellor Merkel’s government to the troika heads of the IMF, the European Union and the European Central Bank (ECB) has been a cross between a big lie and a big distraction: if Greece wants to stay in the Euro, it must elect parties committed to implement the austerity agreements that Greece’s leaders accepted. Keeping the deal, they insisted, is the condition for continued emergency lending to keep the government at least marginally afloat, which mostly means paying its bond holders, whether or not public services continue.

Of course, that is not the choice Greek voters want. They want to stay in the Euro, to be part of the larger European project, but they want whatever conditions Europe imposes to define a credible path that ends the depression and relieves Greek suffering. And why would any peoples want less? But Europe’s leaders have never defined, much less offered such a path.

The logic and moral appeal of the Greek desire is self evident, and it is a measure of the Euro elite’s distorted priorities that instead of acknowledging the real crisis of human suffering, not just in Greece, but in Spain, Portugal, and Ireland, the elites have systematically condemned any Greek leaders who advance this argument. Hence, Alexis Tsipras, who logically says Greece should stay in the Euro and make efforts to pay it’s debts, but should not be forced to strangle it’s own economy and impoverish its people, is called “radical” or “extreme.” more

One of the more obvious facts is that the banking system actually DOES NOT NEED for Greece to starve its citizens in order to survive.  All they really need to do is adjust their bookkeeping rules and they can continue merrily on their way as if nothing happened.   In fact, we already have reports of the very plans the banks have made to protect themselves.

Central banks prepare for turmoil after Greek vote

By Eva Kuehnen and Sven Egenter
FRANKFURT/LONDON | Jun 16, 2012

(Reuters) - Central banks from Tokyo to London checked their ammunition on Friday in preparation for any turmoil from Greece's election, with the European Central Bank hinting at an interest rate cut and Britain set to open its coffers.

Tensions were high about how to manage the euro zone's debt crisis - epitomized by Greece's bankruptcy and need for international aid - and a rare fight broke out between Germany and France, normally the glue that keeps the bloc together.

German Chancellor Angela Merkel criticized France's economic performance, effectively taking a swipe at Socialist President Francois Hollande who has called for more emphasis on economic growth and less on budget austerity.

The feeling of crisis was real. "We must do everything possible to prevent the euro zone from falling apart," Dutch Prime Minister Mark Rutte said on television.

ECB President Mario Draghi, one of many policymakers gearing up for trouble after Sunday's vote in Greece, said his bank was ready to step in and fund any viable euro zone bank that gets in trouble.

He painted a picture of a deteriorating euro zone economy with no inflation danger - conditions for monetary easing.

"There are serious downside risks here," Draghi told the annual ECB Watchers conference in Frankfurt, two days before the vote that could set Athens on a path out of the euro zone and stoke turmoil in financial markets.

"This risk has to do mostly with the heightened uncertainty."
Japan's top financial diplomat Takehiko Nakao warned that authorities in Tokyo would respond to unwelcome currency moves as appropriate, a clear threat of intervention if investors seeking safety push the yen too high.

It was an echo of strong pledges from the Swiss National Bank on Thursday that it would do what it takes to protect the franc from soaring.

The Bank of England followed up on Thursday's joint announcement with the government of a 100 billion pound ($155 billion) offer of loans to banks by saying it will start next week with a charge of just 0.75 percent.

In the United States, Treasury Under Secretary for International Affairs Lael Brainard offered assurance that Washington has a "tool kit" and stood ready to preserve market confidence.

"Everyone is well prepared, too, in the wake of the elections on Greece, to work together to make sure there is a path forward that is sustainable for Greece and bolsters confidence more broadly," she said. more

We already know how the banks in USA protected themselves from the collapse of 2007-2008.  Four $trillion was pumped into the system.  Imagine if that amount of money had made its way into the real economy.

Fed members gave their own banks $4 trillion during bailout

Published: 15 June, 2012, 21:45

A report just released by the US Government Accountability Office explains how the Federal Reserve divvied up more than $4 trillion in low-interest loans after the fiscal crisis of 2008, and the news shouldn’t be all that surprising.

When the Federal Reserve looked towards bailing out some of the biggest banks in the country, more than one dozen of the financial institutions that benefited from the Fed’s Hail Mary were members of the central bank’s own board, reports the GAO. At least 18 current and former directors of the Fed’s regional branches saw to it that their own banks were awarded loans with often next-to-no interest by the country’s central bank during the height of the financial crisis that crippled the American economy and spurred rampant unemployment and home foreclosures for those unable to receive assistance.

Although the crisis continues to have an effect on Americans that were devastated by the recession, the banks that survived the near meltdown were largely able to do so because some of their CEOs sat on the same Federal Reserve board the decided on how to dish out trillions of dollars.

"This report reveals the inherent conflicts of interest that exist at the Federal Reserve,” Sen. Bernie Sanders (I-Vermont) says in a statement about the report. “At a time when small businesses could not get affordable loans to create jobs, the Fed was providing trillions in secret loans to some of the largest banks and corporations in America that were well represented on the boards of the Federal Reserve Banks,” adds Mr. Sanders. “These conflicts must end."

The GAO’s report is believed to mark the first time that the Fed’s records about their major bailout identifying the parties involved to the public.

In a press release published on the official US Senate website for Mr. Sanders, the lawmakers singles out JPMorgan Chase CEO Jamie Dimon over an alleged conflict of interest that could have contributed to the bailout his bank received through the Fed. Sanders also calls out General Electric CEO Jefferey Immelt for sitting on the same Federal Reserve board that approved massive funding to GE during a time of financial insecurity in the United States.

Sen. Sanders’ office has released a report summarizing the information published by the GAO in a four page document hosted on his website titled “Jamie Dimon Is Not Alone.”

“Jamie Dimon, the Chairman a CEO of JPMorgan Chase, has served on the Board of Directors at the Federal Reserve Bank of New York since 2007,” the report mentions. “During the financial crisis, the Fed provided JPMorgan Chase with $391 billion in total financial assistance. JPMorgan Chase was also used by the Fed as a clearinghouse for the Fed’s emergency lending programs.” more