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November 17, 2011
Who’s to blame for the implosion of
Greece—and the global economy?
On May 5, 2010, I open up the Wall Street Journal and I could puke. There
was this photo of a man on fire, just a bunch of flames with a leg sticking
out. Two others burnt with him on a pretty spring day in Athens.
The question is, who did it?
If you read the U.S. papers, the answer was obvious. A bunch of
olive-spitting, ouzo-guzzling, lazy Greek workers who refused to put in a full
day’s work, and retired while they were still teenagers on pensions fit for
pasha, had gone on a social services spending spree using borrowed money. Now
that the bill came due and the Greeks had to pay with higher taxes and cuts in
their big fat welfare state, they ran riot, screaming in the streets, busting
windows and burning banks with people inside.
I didn’t buy it. It wasn’t just a feeling in my gut, it was the document in
my hand, marked, “RESTRICTED DISTRIBUTION. ITS CONTENTS MAY NOT BE OTHERWISE
DISCLOSED. MAY BE USED BY RECEIPIENTS (sic) ONLY IN THE PERFORMANCE OF THEIR
Well, it’s my official duty as a journalist to disclose it. The firebombing,
the mobs in the streets of Athens, mass unemployment, the empty pension funds
and the angry despair that would sweep across Europe in 2010 began with a
series of banking transactions crafted in the United States and Switzerland.
The plan was 18 years old, and here it was played out in the streets of Greece,
then Spain and Portugal, and before that in Latin America and Asia. The riot
was written right into it.
When I ask, Who did it? I don’t mean the damaged fool who threw the
Molotov cocktail into a crowded bank. I’m looking for the men in the shadows,
the very big make-the-monkey-jump men who turned economies into explosive
kindling, lit the fuse, then stood first in line at the fire sale.
I have their phone numbers.
The phone numbers came from a memo about a so-called “end-game.” The ominous
note (shown above), also marked confidential, was written by Tim Geithner and
addressed to Larry Summers. Over time, Summers and Geithner each would take a
turn as U.S. Secretary of the Treasury, but in November 1997, they had higher
posts, as Masters of the Financial Universe. Unfortunately these notes were
just a bunch of paper not worth bothering with unless I could get confirmation
they were legit. And that would require an expensive trip to Geneva to meet
with World Trade Organization Director-General Pascal Lamy.
Before working for the WTO, Lamy ran Le Crédit Lyonnais,
the French megabank. The fit and sparkly Frenchman, comfortable with himself
and confident, dressed down for our meeting in a powder blue sweater vest.
I spread my cards and documents on the table, fanned them out like a Texas
poker player who’d drawn an inside flush. Across the cover of the thick one on
top was a clearly ineffective note:
“Ensure this text is not made publicly available.”
He smiled. Lamy is too smart to ask how I got them, too smart to defend them
and excellent at explaining why they don’t actually exist. “The WTO
was not created as some dark cabal of multinationals,” the banker insisted. But
the meeting notes of this noncabal made for some pretty interesting reading. It
took an hour and a half to go over each, especially the one you could call the
Magna Carta of Globalization.
You know what the perfect crime is?
It’s the one that’s not illegal.
Sanford “Sandy” Weill must have thought John Dillinger was schmuck.
Weill didn’t bother with a few greenbacks in the bank vault. Weill stole the
whole bank. In April 1998, Weill’s company, Travelers Group, an agglomeration
of investment banks and other hot financial operations, took over Citicorp.
Weill, now running the freshly minted Citigroup, made millions off the deal.
The merger was brilliant—and against the law.
While Dillinger, the fool, used fast getaway cars and Tommy guns to avoid
the law, Weill simply had the law repealed.
The law was the Glass-Steagall Act, signed by
President Roosevelt in 1933. Glass-Steagall prohibited banks that take deposits
(“commercial” banks) from merging with “investment” banks. Investment banks,
despite the upright name, are financial casinos, which can make high-stakes,
high-risk bets on stocks, bonds, currencies, derivatives, weather, whatever.
was based on a deal FDR made with banks during the Great Depression: The
government would guarantee savings accounts, but the banks could not then use
those government-backed deposits to finance loading up a poker table with chips
to play a two-pair bluff.
Of course, the world would be a much happier place today, and Greece would
not have burned, if Weill and his fellow banksters had simply taken a trillion
dollars and blown it on a weekend in Vegas.
I’ve done a quick calc on Weill’s deal that broke the law (I mean, literally
shattered it). The stock of the combined Weill companies popped up by $24
billion on the day of the announcement. Nice. The fools and the fleeced were
told the combine “created value.” The hell it did. It created a government
guarantee for Sandy’s casinos. The American public, in effect, put up insurance
valued at $24 billion of Citigroup.
Weill’s bank heist was an inside job. Removing the law that formed the
rock-solid foundation of America’s financial structure would require a lot of
demolition work by U.S. Secretary of the Treasury Robert Rubin, who recommended
that Congress repeal Glass-Steagall and oversaw the Treasury as it helped to
relax similar global financial regulations. Bob Rubin’s jackhammer on
Glass-Steagall was effective—the law’s demolition was signed on November 12,
1999, just four months after Rubin left Treasury and just two weeks after he
joined Sandy Weill to help run Citigroup.
Rubin picked up $126 million in payments from Sandy’s now-legal operation.
That was not a payoff. That was compensation. There’s a difference: six
letters. Count ‘em.
When Rubin left the Treasury for Citi, he put his protégés Summers and
Geithner in charge; Summers to take Rubin’s post, and Geithner sent to Geneva
on a very special assignment.
Soon Goldman Sachs et al. were cranking out new derivative “products” faster
than bed sheets from a whorehouse laundry. Some gray-hairs worried about the
risk. Risk, shmisk. With explicit and implicit government guarantees, the
bankers were ready to go double-or-nothing on insecure securities.
Summers, like Rubin before him, body-blocked all
attempts to regulate the derivatives market.
So, who lit the fires in Greece?
Luckily, some birdies flew over our office and dropped several papers
through the transom. One memo, dated November 24, 1997, was written by
Assistant Treasury Secretary for International Affairs Tim Geithner to Deputy
Secretary Larry Summers.
As we enter the end-game of WTO financial services
negotiations, I believe it would be a good idea for you to touch base with the
CEOs of the major U.S. banking and securities firms which have been closely
following the WTO financial services negotiations. I suggest
you contact, via phone call, the following firms individually.
Geithner advised Summers to call Bank of America’s David Coulter, Citibank’s
John Reed, Chase Manhattan’s Walter Shipley, Goldman Sachs’ Jon Corzine and
Merrill Lynch’s David Kamansky.
But what did Geithner mean by “the end-game” that this list of illustrious
money managing CEOs should be consulted on? Let’s piece together how the game
began. In 1997, there were two burning questions for Summers, Geithner, Rubin,
Weill and the gang.
The first was, “What if shit happens?” What if the decriminalized trade in
weird securities goes bad? Where can the United States dump its toxic assets?
Rubin’s deputy secretary, Summers, would apply the same solution he had
suggested earlier, in 1991, regarding chemical toxins. Then chief economist of
the World Bank, Summers wrote a memo stating that poor nations are
“UNDER-polluted” (his own caps), so the West should dump more toxins there.
When the memo leaked, Summers said it was a joke. It was certainly a joke, but
it was also, under Summers, World Bank policy. Summers would make the rest of
the planet swallow toxic financial assets. Let Ireland, Brazil, Portugal and
Greece pay cash money to take on the U.S. bankers’ risk.
The second question for the bankers was, “How do we bust down financial
rules across the planet?” It was not enough to erase the laws against
speculating with bank deposits in the United States if it was still a crime to
do so in Brazil, India, Spain and Greece. In most nations, betting
government-guaranteed savings accounts on funky securities remained verboten.
What to do? You can’t engineer enough coup d’états and install General
Pinochets everywhere. So then, how to change the laws of 152 nations with a
single coup? Treasury called a meeting.
From the memos, it appears there were little gatherings of Treasury with the
five CEOs mentioned above whom Geithner had urged Summers to consult. How could
they make 152 nations bust apart their banking laws and allow purchases of U.S.
was to take a minor trade treaty, the Financial Services Agreement (FSA), and
turn it into the new finance law of the planet. In their closed little
gatherings, this bankers’ roundtable rewrote the FSA, with protocols forcing
every nation to remove restrictions and old-fashioned safe-banking regulations.
The rewritten agreement would require every nation to allow trade in new
financial products, whether magical or toxic. It would blow apart any nation’s
laws restricting foreign bankers.
The agreement, once signed, would trump any attempt by any Congress or
Parliament to restore protections. The agreement also dictated that, once
demolished, the barriers could not be rebuilt. Return to regulation, called
“claw-back,” would be severely punished. Any resisting nation would be put on
the economic wheel and broken.
In 1997, Assistant Treasury Secretary Geithner was sent to Geneva, to WTO
headquarters, with this new law in his diplomatic bag. He was assigned to
inform the ambassadors of all 152 nations, no exceptions allowed, that they
would have to sign it. Or else.
Or else what?
Sometimes, people—and nations—have to eat shit. But no one orders it from
the menu. The waiter has to hold a gun to your head.
If a country
wanted to trade with the United States, it would have to buy the bankers’
financial “products.” It was a brilliant idea. If a nation wanted to sell
American goods, they would have to swallow American bads—the derivatives, swaps
and all the other exotica coming out of the mad bankers’ laboratories.
Furthermore, Citibank, JP Morgan and other banks would be allowed to jump into
these nations’ markets and suck out capital at will. Local banks would be
Geithner headed off to the WTO in Geneva, and when I was
passed a copy, it was still smoking.
Geithner wrote about an end-game, but what game were they playing? World
Trade negotiations used to be about trade in goods—you know, my computers for
your bananas. But the bankers, through the mucked-with Financial Services
Agreement, had switched the game board.
target of the new FSA would be China. China wanted to sell us everything we
used to make ourselves. The United States would agree to let their stuff in, but
in return, China would have to join the WTO, sign the
treaties, and buy what America makes now: banking “products.” China would have
to let Citibank and JP Morgan set up shop in Shanghai.
In effect, U.S. manufacturing jobs would be sold for the bankers’ right to
gamble in the new market. The score? During the last decade, U.S.
multinationals shed 2.9 million employees in America while increasing their
foreign workforces by 2.7 million.
In May 2010, the end-game ended for Greece.
The new financial products were packaged, polished to a shine and sold to
government pension funds all over the planet. The bankers sold blind sacks of
sub-prime mortgages, sliced and mixed up, as Collateralized Debt Obligations
(CDOs) and other fetid concoctions. The Financial Services Agreement was
But when opened, buyers found the bags were filled
with financial feces. Government pensions and sovereign funds—from Finland to
Qatar—lost trillions. The bags were toxic to bank balance sheets and several
failed. In most cases, however, bankers could get a refill of capital juice
from governments fearful of full-bore financial collapse. Re-funding banks
meant de-funding economies: pension cuts, salary cuts, all the things that
bring an economy to its knees. And sets it on fire.
When Bankers Gone Wild slammed the planet into recession, Greece’s main
industry, tourism, lost two million visitors who were too broke, too panicked,
for beach party vacations and ouzo.
And the more Greece lost, the greater “the spread.”
A spread is the extra interest demanded by speculators and banks to insure
against a nation’s bankruptcy and default. When sold as a derivative, the
bankruptcy insurance is called a credit default swap (CDS).
How could that happen?
In 2001, investment bank Goldman Sachs secretly bought up $1.4 billion in
Greek government debt, converted it into yen and dollars, and sold it back to
Greece at a big loss. Goldman isn’t stupid. The deal was a con, with Goldman
making up a phony-baloney exchange rate for the transaction, hiding the Greek
debt as an exchange rate loss, and working a scam to get repayment of the
“loss” from the government over time at loan-shark rates. Through this crazy
and costly legerdemain, Greece’s right-wing free-market government was able to
pretend its deficits never exceeded 3 percent of GDP.
Cool. Fraudulent but cool. Fraudulent but legal. Read your Financial
Flim-flam isn’t cheap these days: On top of murderous interest, Goldman
charged the Greeks more than a quarter billion dollars in fees.
And those rotting bags of CDOs sold by Goldman and
others? Did they know they were handing their customers gold-painted turds?
Well, in 2007, at the same time banks like Goldman were selling sub-prime
mortgage securities to Europeans, the firm itself was betting that the
securities they created were crap. That’s right: Goldman shorted the securities
it was selling, and picked up half a billion dollars on the bet. Now, if
General Motors built a car they knew would fall apart, would the company be praised,
as Goldman has been, for the brilliance of offloading the junkers to
So Greece went down. It was the spread itself, the premium for the
bankruptcy insurance that put Greece into bankruptcy. It’s as if a fire
insurance company set fire to your house and then charged you higher premiums
because you had a fire.
Not everyone runs from a burning building or a burning nation. Riots have
their fans. One riot tourist couldn’t wait to get to Greece and, to savor it
fresh, invited Greece’s prime minister to lunch.
So, while the streets erupted, while the bank burned, while in the midst of
his sleepless, humiliating begging sessions with the IMF and the German
Chancellor, George Papandreou was called away to a luncheon with a stout man
with a combed-down mustache. It belongs to Thomas Friedman, the world’s most
influential writer on economics.
He is not actually an economist, but he plays one in the pages of the New
Friedman had already visited the burnt bank, a “shrine,” as he called it. He
arrived at the restaurant beaming with delight and, by his own account, dug
into his fish with gusto. The bubbly pundit was so excited that Greece would
have to reduce public workers’ pay, freeze benefits, eliminate jobs and welfare
entitlements, and cut programs such as school building and road maintenance
that you feared he would soil his underpants before the courier delivered his
Friedman ticked off with relish: 20 percent wage cuts, social security
slashed by 10 percent, retirement age increased by four years and massive cuts
in government spending. He was thrilled. The flames and mass unemployment, the
permanent reduction of wages, he said, would bring about a “revolution” in
Greece. And, of course, the post-fire fire sale of national assets.
Papandreou understood the role of the two Friedmans
(Thomas, and before him, Milton). Globalization’s implosion needed apologists,
much like the professors and pundits who, a century ago, blithely sang praises
of the Bolsheviks while ignoring the rotting bodies. Lenin had a name for them:
The Friedmans are very useful to the bankers: to take the spotlight off the
perpetrators and blame financial ruin on the victims. The U.S. press especially
is always ready to blame the victims of financial crime, whether it be home
foreclosures or auto plant closings. Teachers and street cleaners who lose
their jobs, factory workers who lose their pensions—especially if they belong
to unions—are lazy, greedy and guilty. And these
sniveling workers are always grasping for their “entitlements,” as if
collecting Social Security is an avaricious crime, whereas selling bogus bonds
to pension funds is simply smart business.
This essay was adapted from Vultures’ Picnic: In Pursuit of Petroleum
Pigs, Power Pirates, and High-Finance Carnivores (November 2011, Dutton).
Greg Palast is the author of the New York Times bestsellers The
Best Democracy Money Can Buy (2003) and Armed Madhouse (2007), and
co-author of Democracy and Regulations: How the Public Can Govern Essential
Services (2003). Palast has won numerous awards for his investigative
journalism. His stories have been published in many newspapers and magazines,
as well as broadcast on the BBC and Democracy Now! His website is at www.GregPalast.com.
information about Greg Palast