Greece should not be bailed out
The sovereign debt of Greece has been reduced to junk bond status. The downgrade by S&P is fully justified and prevents Greece from indiscriminantly add new debt, but also making service of existing debt and interest payments drastically more expensive. Within the last six months the annual interest that Greece has to pay to investors for its bonds has risen from 4.25% to yesterday's high of 19.60%.
Greece used lies, fraud and deceit to gain membership in the eurozone in 2002. Incompetent European commissions and controls failed to detect the elaborate scheme of Greek governments to deliberately misrepresent its economic strength, willfully lie about feigned intentions to reform and adhere to the EU's budgetary Stability Act - in order to qualify for membership in the eurozone.
Today, Greece finds itself between a rock and a hard place: exploding public debts (close to $600 billion) attached with crippling interest payments ($37 billion due this year alone) that snuffs out any growth this and next year, and the real threat of widespread public unrest that could steer Athens to renege on the few and vague reforms it promised to the IMF just days ago but that are a pre-condition for urgently needed bridging loans at the favourable rate of 5%.
The fiasco that Greece finds herself in today is home-made, and, due to the criminally reckless and dishonest policies of the past, does not deserve the eurozone's support. Greece should be thrown out of the eurozone and treated as a financial pariah just as Argentina and Mexico have been in the 1980s.
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Congress: The Ignorants Run Amok
The US Senate's Banking Committee summoned the chairman of Goldman Sachs to perform a show trial aimed to please the angry (and equally ignorant) electorate in the respective home states that will see mid-term elections in November. The tonic of professional ignorance and unawareness of the markets they supposedly legislate and the fear of voters' irate has lead to the witch hunt of banker we can currently witness.
Less imbecility prone pundits, such as law & business professors, bankers and intellectuals at large know better than the self-righteous pompous arses of Congress, and point straight at the real culprits of the financial crisis that remains to be rampant, albeit out of the daily headlines for now.
The true culprits are the regulators: government (6 consecutive US presidencies), the Federal Reserve Board and, hold your breath Mr Lawmaker, CONGRESS. Goldman Sachs, one of the few profitable banking institutions that could refuse emergency funds from Washington in 2009, acted exemplary and diligently in a murky market where oversight institutions failed to spot weaknesses and on their oversight duties.
In the end, resigned senators accused Goldman Sachs to "bet against products they earlier sold to investors." It shows the full scope of ignorance of how financial markets operate: you have market makers, like Goldman Sachs, who are prepared to set prices on virtually anything, and leave it to third parties to trade on the basis of these prices. Market makers have a professional obligation to set a price on products, how ever complicated and complex, and do so with the benefit of the company, its employees and its stockholders in mind. The failure of Congress to come to grips with the very basic rules of markets disqualifies them utterly from the self-styled role of judges over bankers who fulfil the criteria of true professionalism.
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The Banality of TV Debates: Don't Reveal Too Much
Last night's election debate was surreal to watch. Labour vaguely presented the economic crisis as something spewed out of the intestines of some distant volcano such as Wall Street, Brussels and Asia, rather than as the home-made disaster that was created in the dark halls of Whitechapel and the loose ends of Threadneedle Street. Missing entirely the point of putting blame into the right court - themselves! - the Labour Party tried to excuse itself from blame and fault and consequently failed to offer any glimps of what's in store to correct the financial disaster in the future. No admission, no plan and no vision - the voters should take note of the derelict status of "New" Labour in 2010.
The Opposition played along cleverly, refraining from presenting a doomsday scenario of public finances that is inevitable nevertheless. And rightfully so: why should the Opposition harm its chances to capture the Commons by sounding stern and alarming over the truly catastrophic state of affairs left by 13 years of Labour, and providing a safety net for Labour's majority in Parliament? The country needs change, badly, and our role is to kick Labour hard, especially when they're down.
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