THE BLOG

The Transparent Exploitation of Greece By Deficit Hawks

05/17/2010 11:10 am ET | Updated May 25, 2011

A couple of weeks ago Standard & Poor's downgraded Greek debt. They did so precisely because the austerity measures imposed by a bailout deal with the EU will shrink their economy and likely make it more difficult for Greece to service existing debt. Does it sound as if S&P thinks cutting government spending is a good idea? Sounds to me like S&P is thinking Keynes while the public face of finance is talking small government voodoo.

Goldman Sachs et. al. acted as irresponsibly as did the Greek government in making a crisis come about. Goldman must have seen that in creating the accounting cover for Greece breaching EU deficit limits that they would imperil the EU. They also must have known that the EU would have to assume Greek debt, like a cosigner to a loan but without the courtesy of asking for an actual signature. Greece had a problem, but Goldman promoted that problem into an international financial crisis.

In effect, capitalists took advantage of the naivety or stupidity, whichever insult suits your mood, of Greek officials. No government, just like no minimum wage worker, will set out to ruin themselves with debt. It takes an irresponsible lender to write a bad loan. Greece was an enormous pay day loan scam built on financial instruments as incomprehensible to the Greek government as are pay day loan rollovers to hotel clerks. More than anything else, Greece argues for international finance consumer protection.

Think that governments can fend for themselves in high finance? Examine the rationale behind exempting private equity markets from regulation, Rule 144A. The theory was that the big boys could do their own diligence. That resulted in CDOs being sold to our nations biggest investors, pension funds, endowments and Fannie/Freddie, that were doomed to default. Nobody could figure out the complex concoctions of financial innovation run amok, not our SEC, our Federal Reserve, our Congress or Greece.

It is exactly the intersection of socialist and capitalist excesses that combined to create a problem of this magnitude. Greek problems would have shown up and their sovereign debt downgraded long before it ballooned out of control but for the slight of hand of Goldman and friends. The magnitude of this crisis is a problem of socialism operating in capitalist world, and is, in the end, certainly not a shining example of the virtue of unbridled capitalism. Both philosophies share the blame.

The lynching of Greek socialism in the press and by political opportunist deficit hawks is so amazingly transparent as to be comical. Keep shouting boys. The more attention you bring to this issue the more the operation of global finance will come under public scrutiny. The Greeks may even sue.

Greece probably does need some serious political overhaul. They are this year's poster child for pandering to the masses by left leaning politicians. There is no doubt that this is a temptation, just as pandering to corporations is a powerful temptation for the right. There is nothing inherently wrong with either capitalism or socialism that can't be cured with integrity in leadership. Neither philosophy is so exhaustive that it can be trusted to operate without the interventions of reasonable honest men, though an elusive breed they may be.