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“In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills.” — LOUISE STORY, LANDON THOMAS Jr. and NELSON D. SCHWARTZ
The Greek problem is a huge underground economy that doesn’t pay tax, a succession of free spending socialist governments that have raised their debt/GDP ratio well above 130% and guaranteed jobs for life for anyone on the public payroll.
This is a classic example of how unions and socialist governments can drive the country and the entire economy of Europe into yet another recession. Spain may follow. Spain pays unionized Air Traffic controllers over $1 million per year.
The IMF will probably ride to the the rescue. The government will have to sell ALL the people’s assets, allow the multinational corporations to privatize all the services and social programs in the country and then raise the peoples taxes while lowering corporate taxes to encourage more corporations to come in and rape what is left of the country! All as per IMF restructuring rules.
The caveat, however, is that Germany and France have straight out told Greece and the EU parliament that they will not consider having the IMF bail out the Greek state.
Wall St. Helped to Mask Debt Fueling Europe’s Crisis
By LOUISE STORY, LANDON THOMAS Jr. and NELSON D. SCHWARTZ
Published: February 13, 2010
Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.
As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.
Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.
The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards. You can find the full startling article from New York Times
The reality of the Greek economy
Any casual observer of the Greek economy could have predicted its present fiscal meltdown, which is emblematic of big government socialism. Here is the creed of the average EU socialist state:
- Praise socialism in the abstract, and demonize capitalism, especially the American model as cruel and heartless.
- Cheat in every way imaginable on your taxes. On any average day in Greece, a shopkeeper, repairman, or business person would offer a product or service for a 30% discount if paid in cash, and kept off the books. Tax-dodging was a national pastime—and this from die-in-the-wool socialists. (e.g., we are back to the paradigm of this nation’s leading tax-enforcer and tax-lawmaker both being tax dodgers)
- Connive for every imaginable state entitlement. In Greece, inventing a disability, fudging for an age subsidy, keeping a dead beneficiary on the books is likewise a national pastime. The notion that the EU had to send more monies southward than went back in taxes to Brussels made it all the better, as there was a sort of endemic “us/them” or Michelle Obama-like “raise the bar” mentality that something was “owed” to Greece anyway, so why not take advantage of richer European cousins? No honor among socialists?
- Institutionalized lethargy. When one cannot be fired, then one immediately begins to plot to slow down, how to do the least imaginable work for the greatest pay. The beaches near Athens in the afternoon had plenty of government power, water, and phone panel-vans, as employees went out on a “service call” to the sea.”
Source Victor Hanson
Bailing out the Greek government is the worst thing that could happen to the EU, unfrotunately it looks like one is coming. The problem is that it creates a moral hazard and says to the Greek government its acceptable to be reckless and irresponsible because they know they’ll get bailed out. In addition, it sends a message to other EU nations like Spain and Italy (Italy especially with a very large debt) that you do not have to be fiscally responsible because they know they’ll be bailed out. This creates an atmosphere of irresponsibility.
The moral hazard is also sent out to creditors because if Greece is bailed out that means the people that loaned money to them don’t have to lose any money because they know they will get it from someone somewhere. This sends the message to send money to Greece anyway because the creditors know they will get bailed out. This will go down the block to othe countries who are in their throws of bankrupty. Indeed, we have to let entnties fail because investors have to know that if they invest in failed entities they will lose money and put it elsewhere. This punishes the credit worthy states who have to pay more even though they are being responsible which encourages them to act irresponsiblity when they would have been responsible all along — a kind of lost opportunity cost.
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