Wednesday, March 10, 2010

Sovereign Debt Defaults?

Today is Wednesday, 10 March 2010.

For the moment, it seems less likely that Greece will default on its sovereign debt, though more than 20 billion euros in debt falls due in April and May. However, the situation again highlights the urgent need for greater regulation of major American financial institutions, and far more severe penalties when they cheat.

The fundamental reason that Greece is in trouble is that the former (conservative) government refused to raise taxes on the wealthy to levels which would sustain its spending. A contributory reason is that Goldman Sachs helped that government conceal some of its massive borrowing. Goldman essentially took a leaf from the Enron playbook, creating special purpose vehicles to conceal debt by moving it off the national balance sheet. Goldman was paid quite handsomely for its creative fraud, thank you very much.

The reason I’m deeply concerned about the possibility that Greece (or other struggling members of the Euro Zone, such as Italy, Portugal, and Spain) might default is that the world financial system is far more fragile than during the defaults by Argentina (2002) and Russia (1998). That system came within a very small margin of imploding in September 2008, when the bankruptcy of Lehman Brothers led to gridlock and The Great Recession. Another part of my worry is that we don’t know if similar financial chicanery has created additional debt landmines waiting to tear the legs off other national economies. (Only the participating madoffs would know for sure.) We may well be headed for a repeat.

As I’ve noted a depressing number of times before, it’s one more consequence of the Reagan-Bush-Cheney-Bush Republican burden of de-regulation: enabling the foxes to rule the henhouse.

The Museum of the Bourgeois takes great delight in wishing the happiest of 27th birthdays to the lovely and talented daughter of a True Friend.


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