Happy Serfdom Day!

SUBHEAD: Happy Fourth of July. Enjoy it while it lasts. And maybe save some for your kids. By Ilargi on 4 July 2011 for the Automatic Earth - (http://theautomaticearth.blogspot.com/2011/07/july-4-2011-serfdom-day.html) Image above: 2011 July 4th celebration in Waxhaw, North Carolina. From (http://www.waxhaw.com/index.asp?Type=B_BASIC&SEC={54FC3820-1D60-4B8F-A7BB-DC726C2B31A4}). Independence, right? Fireworks and all, fighter jet fly-overs. Boy, are we ever free! Got to wonder, though, how much longer these celebrations make any sense. See, in Greece they're fast losing their freedom and independence. The country may still be a sovereign nation in name, but are the Greeks still a sovereign people? According to Erik Kirschbaum at Reuters, Eurogroup chairman Jean-Claude Juncker thinks not:

Greek sovereignty to be massively limited: Juncker

Greece faces severe restrictions on its sovereignty and must privatize state assets on a scale similar to the sell off of East German firms in the 1990s after communism fell [..] "The sovereignty of Greece will be massively limited," he told Germany's Focus magazine in the interview released on Sunday, adding that teams of experts from around the euro zone would heading to Greece. [..] The Greek parliament voted on Thursday to set up a privatization agency under austerity plans agreed with the European Union and IMF which have provoked violent protests on the streets of Athens. Greeks are acutely sensitive to any infringement of their sovereignty or suggestions of foreign "commissars" getting involved in running the country. "One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the euro zone," Juncker said. Athens must sell off five billion euros in state assets this year alone or risk missing targets set under its EU/IMF program, which could cut off its funding needed to keep the government running and avoid a debt default. A repeat of Germany's Treuhand experience may prove bitter for Greeks, who are already suffering soaring unemployment as a recession drags into its third year. Once the world's biggest holding company, Treuhand was supposed to sell off state property at a profit but closed its books with a huge deficit and a legacy of bitterness among the legions of workers whose jobs it destroyed. Four million Germans were employed by Treuhand-owned companies in 1990 but only about 1.5 million jobs were left in 1994 when the agency closed. Instead of reaping profits to be distributed to all east Germans, as it was designed to do, it ran up debts of 270 billion marks ($172 billion) in the fire sale of assets.

To call Treuhand an abject failure would be a gross understatement. Still, Juncker cites it as an example for Greece. Lovely. Well, to be honest, it was a failure only for the people. Not for banks and industries. Viewed from that angle, it all makes sense. As does openly stating that Greece will be massively limited in its sovereignty. It all depends whose interests you're protecting, after all. And no, we're not just talking Greece here. From the Guardian:

Sell, sell, sell: everything must go in great fire sale

Greece Europe's most ambitious sell-off is taking place in its most indebted nation: Athens plans to sell €50bn (£45bn) of state assets by 2015. Looking at the sales list, it seems that very little has been left off the table. The government's stakes in the ports of Piraeus and Thessaloniki, 39 airports, a state lottery, a horse-racing concession, a casino, a national post office, two water companies, a nickel miner and smelter, hundreds of miles of roads, a telecoms operator, shares in two banks, electricity and gas monopolies and thousands of hectares of land, including coastal stretches, are among the host of assets on offer.[..] Ireland The national airline, ports, power stations and even the Irish National Stud, which hosted a visit by the Queen in May, face being broken up or sold off under plans to get Ireland out of the red. A government-commissioned review of state assets published in April said privatisation could raise about €5bn for the cash-strapped country. [..] Spain The world's biggest annual lottery payout, Spain's famous Christmas El Gordo (Fat One), spreads joy to tens of thousands of winners – but the biggest winners of all may soon be investors who snap up part of the state company behind the lottery. [..] Some 30% of the state lottery will be sold as the organisation behind the 151-year-old El Gordo becomes what may be the world's biggest listed gambling company, valued at up to €25bn. The company recorded €3bn net profit in 2009 on sales of €9.8bn – meaning the sell-off will reduce treasury income by about €1bn a year. RBS recently won a contract to run the privatisation of up to 49% of Spain's airports authority, AENA, which has a book value of €2.6bn. The government also plans to auction off Madrid's Barajas airport and Barcelona's El Prat by the end of the year. Reform of the country's savings banks means that many will also soon be seeking stock market listings. [..] Portugal Neighbouring Portugal is in even starker need of money after accepting a €78bn bailout. On Thursday, the newly elected centre-right prime minister, Pedro Passos Coelho, announced a rush sale of state holdings in the utility company Energias de Portugal and the power-grid operator REN by October. Passos Coelho recently told the Financial Times that he wanted to sell off up to 49% of water utilities as well as several state media interests, reportedly including television and radio channels, plus the national news agency Lusa. The state airline TAP and the airport owner ANA – which runs airports in Lisbon, Faro, Oporto and the Azores – are also due to be sold along with the insurance business of the state-run bank CGD [..] Britain The coalition government in Westminster is in the process of selling off the 49% state stake in the air traffic control service Nats, decommissioned naval ships and its own collection of fine wine. In the March budget the chancellor, George Osborne, set a target of raising £2bn from asset sales to finance the Liberal Democrat's idea for a green investment bank. The bulk of that is coming from the sale of its remaining stake in Nats and the Tote, the government-owned bookmakers. The private bookmakers Betfred have been chosen to buy the Tote for a reported price of £200m. [..]

By the way, Richard Milne at the Financial times reports that S&P have said the Greek bailout will be declared a default (credit event) anyway:

S&P threatens Greece with default

French and German banks’ plan to roll over their holdings of Greek debt suffered a huge blow on Monday as Standard & Poor’s, the credit rating agency, said the move would amount to a default. The proposal to provide up to €30bn ($43.6bn) in financing for Greece had been made conditional on rating agencies not downgrading Greece’s debt. But S&P said in a statement early on Monday that any rollover would be a “distressed” transaction and thus lead to Greece’s rating being lowered to selective default. Such a move all but scuppers the rollover proposal in its current form. It is also likely to further heighten European scrutiny and scepticism of rating agencies, who are blamed by some for stoking the eurozone debt crisis as well as having missed the causes of the 2008 financial crisis. The euro erased all its gains against the dollar and European markets were seen opening lower on Monday morning on the news. S&P said both proposals put out by the French banking federation last week – and broadly endorsed by both German banks and other global financial institutions – would amount to a default.

That would indeed seem to be the only logical conclusion. But the IMF and ECB may have more up their sleeves yet. The best way to look at the bailout plan, meanwhile, is provided by Wolfgang Münchau at the Financial Times:

The Greek rollover pact is like a toxic CDO

It was always clear that European politicians would ultimately end up trying a complex debt product to solve the crisis. If you want to “kick the can down the road”, as the wearily favourite metaphor of the crisis goes, if you want to obfuscate facts and circumvent rules, then a variant of a collateralised debt obligation seems the perfect choice. I wonder what took them so long. I have no space for a large drawing with lots of boxes and arrows to explain the complexity of the vehicle, through which eurozone governments want to involve the private-sector banks in its next loan package. So here is my best attempt in words: if you own a Greek bond that matures by June 2014, you keep 30 per cent of the redemption as cash, and roll over 70 per cent into a 30-year Greek government bond. The Greeks will have to pay an annual coupon, or interest rate, of between 5.5 per cent and 8 per cent. The precise rate will depend on future economic growth. Of the money received, Greece will lend on 30 per cent to a special purpose vehicle, another well-known construction from the subprime mortgage crisis. The SPV invests into AAA-rated government or agency bonds, and issues a 30-year zero coupon bond. The purpose of this is to guarantee the principal of the 30-year Greek government bond that you just bought. With this construction, the downside to your losses is limited. Depending on how some of the parameters of this agreement evolve, you will probably make a small loss, relative to the par value of your holding. If you are lucky, you might come out positive. You will probably not be lucky. But you will still be better off than if you sold today, or if Greece were to default. More important, the accounting rules allow you to pretend that you are not making any losses at all. If this was any other field of human activity, you would go to jail if you accepted, let alone made such an indecent offer. [..]

So when everybody sells everything, where do we draw the line between a sovereign nation and one that is "occupied"? It's hard to say, granted, but I would think that a people that wants to be in charge of its own destiny would want to always retain control of its transport and energy infrastructure: roads, waterways and ports, energy sources and supplies, etc. Control over health care services and schools seems obvious too, if you want to be and feel independent. And we haven't even mentioned land yet. The prevailing ideology, however, has become the privatization of everything that's not bolted down (and even then...) The underlying notion, of course, is that private business is more efficient than government in running all sorts of services. Whether that's true or not is up for debate, but there's another factor at play as well: private businesses are run for profit, and profit implies growth. The question than must be asked if we really want our hospitals and prisons to be run as growth industries. After all, that would at some point necessarily mean we need more sick people, and more criminals. Yeah, you're right, that does look a lot like what we already have in the US, doesn't it? And while the examples above deal with European nations selling off their goodies, the same happens stateside of course. Individual states, as well as counties and municipalities, are auctioning off roads and buildings as fast as they can, in desperate and doomed attempts to make budgets whole. Just like Greece does. All while awaiting the economic recovery that never seems to come, or not quick enough, or not enough enough. The problem is that this economy, these economies, will never recover. They will never return to where they once were. They won't even return to where they are now. Because there is so much debt all around, and our leaders refuse to let the institutions that incurred it pay the bill, there's a huge amount of downside waiting for us. And selling off what should have been our children's inheritance is not going to change that. It will only make their lives that much harder. They will indeed not be sovereign people, they will not hold control over their own societies. And they will therefore have no reason left to celebrate their Independence Day. They will be serfs. Debt slaves. The gutting of societies and their independence is not new by any stretch of the imagination. The gutting of our present societies, too, started a long time ago, with the ideas propagated by Milton Friedman and his Chicago School criminal racket. What cannot, however, be put at Friedman's feet, is the devastation to the world we live in caused by the derivatives trade. And that, to repeat myself, is where today's real danger lies. I'll leave you with something that Chris Whalen wrote on the topic two weeks ago. Happy Fourth of July. Enjoy it while it lasts. And maybe save some for your kids. .

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