Which do you trust more: democracy or financial markets?
Greek Prime Minister George Papandreou decided in favor of democracy yesterday when he announced a national referendum on the draconian budget cuts Europe and the IMF are demanding from Greece in return for bailing it out.
(Or, more accurately, the cuts Europe and the IMF are demanding for bailing out big European banks that have lent Greece lots of money and stand to lose big if Greece defaults on those loans -- not to mention Wall Street banks that will also suffer because of their intertwined financial connections with European banks.)
If Greeks accept the bailout terms, unemployment will rise even further in Greece, public services will be cut more than they have already, the Greek economy will contract, and the standard of living of most Greeks will deteriorate further.
If Greeks reject the terms and the nation defaults, it will face far higher borrowing costs in the future. This may reduce the standard of living of most Greeks, too. But it doesn't have to. Without the austerity measures the rest of Europe and the IMF are demanding, the Greek economy has a better chance of growing and more Greeks are likely to find jobs.
Shouldn't Greeks be able to make this decision for themselves?
Of course, if Greek defaults on its loans, global investors (fearing that a default in Greece sets a dangerous precedent) may yank their money out of Italy. This would almost certainly bust several big European banks -- and generate panic on Wall Street. That's why Tim Geithner has been pressing Europe to bail out Greece.
We've been here before, remember? Here in the United States, at the end of 2008 and start of 2009. Wall Street had made lots of bad loans, and the question we faced then was whether to bail out the Street.
The difference is, we didn't hold a referendum. Instead, the Bush administration told Congress the nation risked "economic Armageddon" if it didn't immediately authorize a giant bailout of the Street -- with no strings attached. Of course Congress hastily agreed. Hank Paulson, Ben Bernanke, and Tim Geithner (as head of the New York Fed) then doled out the money. And the Obama administration (with Geithner installed as Treasury Secretary) gave out more.
So instead of allowing the Street to live with the consequences of its negligence, we bailed it out -- and allowed the Main Streets of America to suffer the consequences.
If Americans had been consulted about the bank bailout, I doubt it would have happened the way it did. At the very least, strict conditions would have been placed on the banks in return for the money. The banks would have had to eat the losses of the predatory mortgages they sold, and help homeowners reduce those mortgages. They'd be required to improve the capitalization of small banks in communities across the country. They'd be forced to accept stringent new regulations, including resurrection of Glass-Steagall.
But Americans weren't really consulted. It was an inside job.
As a result, Wall Street has prospered but the rest of the nation hasn't. One out of four homeowners is underwater, owing more on their homes than the homes are worth.
And with the worst economy since the Great Depression, we're now embarking on fiscal austerity. Either Congress's super-committee comes up with $1.2 trillion of federal budget cuts that Congress agrees to -- going into effect a little over thirteen months from now -- or $1.5 trillion of cuts are made across the board. Meanwhile, states and cities have been slashing public services for the past three years.
So which is it? Rule by democracy or by financial markets? Based on what's happened in America, I'd choose the former.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
Jeff Madrick: Super Committee Cuts to Social Security to Divert From Real Issues
Deborah Weinstein: Disappointing Reports of Deficit Plans That Target Vulnerable People
Robert Kuttner: Beware Greeks Bearing Teeth
Clarence B. Jones: When Does the Preferential Treatment of Banks Become Obscene?
Representatives are voted into office to deal with such complexities full time. If their actions are not in line with the preferences of their constituents, they will be voted out of office for the next term.
It save to allege that more than 80% of Greece or those of any other European country's voters don't have a clear understanding of the issues involved. Most are for example simply not aware of the already very extensive regulatory framework instigated by the EU.
Countries which are forced to submit major issues to a referendum (like the Swiss) end up with no effective foreign policy to speak of. As demonstrated by Greece now you can't negotiate a compromise under direct democracy.
Politics and associated compromises are difficult enough without a referendum. Image that after the Greece referendum all other European partners would have to submit that compromise to their respective populations too.
A referendum might be nice on some constitutional principles, but not on day to day policies.
Instead of a referendum, the US would be much more served with limiting election funding to contributions from citizens only and proportional representation. Might even transform the US in a civilized state again.
I can only add that I think the Swedish system is just.
All political parties receive equal amounts of money for each election from a government fund set aside for this propose. Fair and just. Then they can use the money as needed. Promotions., commercials.... ect
No special interests, lobbyists or private donations.
Fair and balanced.... in reality.
donations.
www.osce.org/odihr/elections/70947
Seems your education has failed you. You don't know how your own system works.
This bailout and the accompanying austerity measures will assure that Greece will never get off it's back. Papendreao was right in wanting to give the Greek people a say in this lousy backroom deal.
Well, kudos to Mr. Reich and Mr. Papandreou, for putting Democracy before the financial vultures of the World! Finally, we have two leaders who do not kiss any financial a.s !
The author would prefer that the American people as a whole had the responsibility of voting up or down on the bailout of Wall Street, but if that had happened, and we had rejected it, we really would be facing economic armageddon. I disagree strongly with the way that it was done, but action needed to be taken, and I believe that the great majority of Americans would have supported the bailout if they knew the consequences of opposing it.
Fiat currency itself isn't backed by gold anymore, but that doesn't mean it is unimportant. It represents a share in the American economy, in a way. To understand the importance of a credit crisis, it might help to take the money out of the equation, and just pretend that we're still using gold coins.
Anyways, that hasn't got much to do with the point he is trying to make. I don't know much of anything about Greek politics, but I do think that the leaders of the Eurozone are being unfair to him. They are only considering their own respective economies when they demand austerity for credit in Greece. However, paying off their debt and retrenching public spending even more will do little to bolster the economy of the Greeks. The public knows that, and so the "rescue" package is very unpopular. The PM is not going through with the plebiscite out of any populist sentiment; he's totally on board with the EU's plan (from what I've heard)--the reason he's calling for a referendum is because he doesn't believe he has enough support in parliament to survive the confidence vote.
"It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection," said the CME, one of MF Global's regulators.
U.S. regulators started raising concerns about MF Global's European sovereign debt exposure as early as June, according to a source familiar with the matter, some four months before the company's collapse.
While the event hit volumes in the commodities market earlier in the week, bankruptcy court proceedings on Wednesday offered hope that customers would be able to trade again by the end of the week as their positions and much of their collateral were transferred to other brokers.
As for the broader economic implications, U.S. Federal Reserve Chairman Ben Bernanke said they are limited.
read more....
http://www.reuters.com/article/2011/11/03/us-mfglobal-trades-idUSTRE7A163Y20111103
The same goes for Greece: cutting more people from the government payroll, raising taxes, and cutting social spending is going to make things a whole lot worse there before it gets better. We are fortunate enough not to be in the same position they are, and I hope the Obama administration and Congress are a little more prudent in their priority-setting.
By Sarah N. Lynch, Christopher Doering and Jonathan Spicer
Wed Nov 2, 2011 10:25pm EDT
(Reuters) - In its final days before descending into bankruptcy, Jon Corzine's MF Global Holdings may have transferred customer funds to avoid detection by authorities, a regulator of the firm said on Wednesday.
MF Global, the futures brokerage which collapsed Monday after risky trades on European debt, faces a shortfall of $633 million in customer funds, according to an estimate from CME Group Inc.
A source familiar with the matter told Reuters that regulators are still not sure where the money is, and why they can't find it.
Read more........
http://www.reuters.com/article/2011/11/03/us-mfglobal-trades-idUSTRE7A163Y20111103
By Sarah N. Lynch and Christopher Doering
Wed Nov 2, 2011 8:33pm EDT
(Reuters) - U.S. regulators started raising concerns about MF Global's European sovereign debt exposure as early as June, according to a source familiar with the matter, four months before the company's collapse into bankruptcy.
The revelation comes as MF Global tries to account for hundreds of millions of dollars in client accounts that are still missing, according to a federal official. While the size is down from an initial $900 million that was missing, the source told Reuters that regulators are not sure where the money went, and why they can't find it.
The meltdown of Jon Corzine's firm after high-risk bets on European debt should spark reforms to separate retail from investment banking operations, according "Bond King" Bill Gross, who says it marks another example of how Wall Street has "lost its way."
Read more.......
http://www.reuters.com/article/2011/11/03/us-mfglobal-finra-idUSTRE7A158J20111103
I'm pretty shocked by these comments . . .
Greece is not rich with natural resources, 1/5 of their economy is based on tourism . . . if they go this route, this country won't be able to recover very easily and I'd expect to see 50% inflation with few people wanting to borrow them money.