Economic Terrorists Attack Greece and the Euro, May Turn On the US Next
07 / 06 / 2010
There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning. – Warren Buffett
When an individual burns down his own house to collect on the insurance policy, it’s commonly called fraud. Pushing one’s car off of a cliff to get a payout from a comprehensive coverage plan will often result in jail time. So, why is it perfectly legal for billionaires to take out insurance on a commodity they don’t even own, then manipulate the financial markets until that policy pays off? And at what point does manipulating the instability of global markets by encouraging fear and uncertainty become economic terrorism?
In February, the Wall Street Journal reported that an ‘idea dinner’ made of up several hedge funds including SAC Capital Advisors and Soros Fund Management, LLC focused on investment ideas regarding the euro and the current Greek debt crisis. The consensus was that the euro was going to fall in value relative to the dollar, and that billions could be made by placing the right bets…and applying proper pressure on the market.
The currency wagers signal that big financial players spot a rare trading opening driven by broader market gyrations. The euro, which traded at $1.51 in December, now trades around $1.35. With traders using leverage—often borrowing 20 times the size of their bet, accentuating gains and losses—a euro move to $1 could represent a career trade. If investors put up $5 million to make a $100 million trade, a 5% price move in the right direction doubles their initial investment.
“This is an opportunity…to make a lot of money,” says Hans Hufschmid, a former senior Salomon Brothers executive who now runs GlobeOp Financial Services SA, a hedge-fund administrator in London and New York.
It is impossible to calculate the precise effect of the elite traders’ bearish bets, but they have added to the selling pressure on the currency—and thus to the pressure on the European Union to stem the Greek debt crisis.
There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning. – Warren Buffett
In other words, the richest investors in the world bet that the euro would drop in value in the face of an impending European debt crisis. In truth, they were likely hoping for Greece to default on that debt. The article goes on to note that, three days after the dinner, a massive sell off of the euro occurred causing it to fall again. Coincidence? Not likely where hedge funds controlling hundreds of billions of dollars are involved. Billionaire George Soros, among others, openly stated that he believed the euro would continue dropping in value. The market is, if anything, one giant self-fulfilling prophesy. When one of the richest men in the world says he’s bearish on a currency, you can bet the financial world will follow his lead and start dumping it as well. Of course, this just perpetuates the problem and causes the value of the euro to drop even further.
This market manipulation doesn’t just affect Greece. The downward pressure on the euro has forced the European Union to fight back against a potential cascade of financial failures across Europe. The falling euro and a Greek bankruptcy will have deleterious effects on the national debts of Spain, Portugal, Ireland and Italy. To combat such a catastrophe, the EU has created an ‘unprecedented’ loan package worth at least $645 billion to help Greece and the other struggling European nations. According to Bloomberg.com:
Jolted into action by last week’s slide in the currency to a 14-month low and soaring bond yields in Portugal and Spain, the 16 euro governments sketched out plans to make 440 billion euros ($570 billion) available, with 60 billion euros more from the EU’s budget, according to three officials at the talks in Brussels. An additional, unspecified sum may come from the International Monetary Fund, the officials said.
“We are going to defend the euro,” Spanish Economy Minister Elena Salgado told reporters as she arrived to chair the meeting yesterday. “We think we have a duty for more stability for our currency. We will do whatever is necessary.”
Those soaring bond yields were a direct result of the S&P 500′s downgrade of Greek debt to ‘junk’ status brought on by the falling Euro. In effect, instead of owing just $45 billion, the new ‘junk’ interest rate could force Greece to repay hundreds of billions in the long term. Now, even the Federal Reserve is getting involved, sending as much as $30 billion to Europe in support.
The current market strongly suggests that Europe will not be the only target for these global raiders. Unless serious global financial reform occurs in the near future, no nation or state with considerable debt will be safe. There is some hope for the financial future of Europe, though. The EU is looking to regulate hedge funds and how they trade in the European market, an attempt to limit future financial catastrophes brought on by short-selling investors. According to Reuters:
“We want to have clear rules that these managers have to stick to,” said Udo Bullmann, a German Socialist member of the European Parliament who plays a central role in deciding the law. “The hedge funds played a role in the Greek crisis.”
Bullmann said the rules would include curbs on pay such as an end to “golden handshakes”, as well as strict limits on private equity investors trying to extract dividends from companies within the first four years of ownership.
“There are good private equity companies,” he said. “But there are others that do no more than buy companies, bulk up their debts and then asset strip. We want to restrict that.”
There are, of course, the usual detractors to this proposed legislation. Britain – home of most of Europe’s hedge funds and almost all of the private equity firms – is worried that strict rules will discriminate against companies operating in that country, causing them to move their operations to places like Dubai or Asia. The United States, under the ever-so-dubious lead of Treasury Secretary Timothy Geithner, is concerned that new laws would make it difficult for New York funds to find investors in Europe. Both arguments have merit, but only from a cynically plutocratic point of view. The crony capitalism that has infected the US and Britain seems to blind our governments to any substantial understanding of the cataclysmic economic damage that can be done by a determined cabal of rich speculators. In fact, it’s almost as if the stock market crash of 2008 never even happened. If strong hedge fund rules are enacted in Europe, it’s likely Europe itself will have to do most of the heavy lifting.
The fallout from groups of hedge funds short selling entire markets is the logical conclusion of an unregulated ‘free’ market system. Instead of identifying real economic opportunities, creating businesses, providing employment and helping these nations grow their way out of debt just as the US did after WWII, these hedge funds are content to make money the easy way by destroying national economies. Their actions lead to massive unemployment, the paralysis of needed public services, the dissolution of pension funds and 401k’s and the ruination of the middle class. And there are always bigger financial challenges. Regardless of their US ties, there is nothing legal to stop them from focusing on our nation next. Large states in considerable debt like California and New York could find themselves easy targets. These people have already proven they’re willing to watch entire economies fail in order to make another billion. So, what’s a little treason when so much money can be made?
It’s difficult to talk about these issues without being accused of engaging in hyperbole. However, there is no way to 0verestimate the influence that these multi-billion dollar hedge funds can and do have on the manipulation of our world economy. Millions of everyday people invested in pension funds and 401k’s, families worried about unemployment, government employees; all are victims of the hedge fund ideology. So, what’s the difference between currency manipulation that leads to the bankruptcy of an entire nation and exploiting a weakness in our national computer network? Why do we call one ‘the free market at work’ and the other ‘cyber-terrorism’? Fundamentally, there is no difference. However, we seem to excuse one in the name of higher profits, still clinging to some infantile hope that self-interested plutocrats will deign to shine a bit of their financial grace on the rest of the world. This, as most clear thinking people know, will never happen. In fact, in a ‘free’ market, it’s not designed to. Where money is a factor, though, we seem to lose any and all concepts of reality.
Europe’s efforts notwithstanding, there is very little to make one believe the rules of this game will change any time soon. Until the world’s governments decide that rule by an oligarchy of billionaires is no longer in their peoples’ interests, this kind of global terrorism will continue. But the issue goes much deeper than that. Talk to Americans on the street and you’ll hear similar stories. So many of us dream of winning the lottery, selling some lucrative invention or making a billion dollars on Wall Street. It is such a ingrained part of our culture, we often give deference to the rich and powerful no matter how they made their money. In a very real way, we worship these people. If a man can get filthy rich without creating a single job or any actual wealth, we honor him with a lower tax rate (capital gains) and incredible influence over our federal government. Our President invites him to private meetings, he becomes a celebrity and a household name like Warren Buffet or George Soros. He is nothing less than a superstar.
So, if he eventually becomes a terrorist, will we even bother to notice?
Source: Economic Terrorists Attack Greece and the Euro, May Turn On the US Next
07 / 06 / 2010 | Tags: Economic Crisis, George Soros, global markets, Greece, warren buffett |
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