Saturday, February 13, 2010

Wall Street and Greece

The gamblers on Wall Street continue running wild, causing havoc all over the globe.

This time the same gamblers who used leverage and exotic financial instruments such as credit default swaps (CDS) to bring our financial system nearly to its knees have set their sights on Europe. Wall Street traders have bet a record amount against the European currency – the Euro – betting that it would fall.

The Wall Street gamblers have attacked Europe's peripheral economies which include Greece, Spain, Portugal, Ireland and Italy. In particular, they have attacked effect, turning the country into a pinata. But instead of sweets, the Wall Street version is stuffed with money for the bankers to scoop up with both hands.

Wall Street has jumped on the notion that Greece and these other nations have too much sovereign debt on their books that they will not be able to pay back. And there is no denying that it is a serious problem. For instance, Greece must pay back about $70 billion in maturing debt this year.

But it is a manageable problem with probably the richer European countries such as Germany helping their poorer neighbors. Also do not be surprised if China becomes a 'sugar daddy' to many of these European nations.

China probably senses an opportunity for political advantage and good PR, especially in light of the many anti-American protests – really anti-Wall Street protests – in these countries (which are not being covered by American media).

My question is whether by the time Wall Street is done pillaging the globe, will America have any friends left?

Owe Say Can You See

Perhaps Wall Street should pay closer attention to the massive debts piling up here in the United States and the future of the US dollar, not the Euro.

The budgetary strains in America's 50 states (only North Dakota is in good shape) and 52,000 municipalities gets far too little attention.

There are seven large US states which are in much bigger trouble than the smaller European countries. In addition, these states are a much larger portion of the US economy than the small European countries are of the total European economy.

These states are: California, Florida, Illinois, Ohio, Michigan, North Carolina and New Jersey. Of course, there are other states teetering on the brink like New York for instance. And let's not forget about all the many cities and municipalities across the country which are considering filing for Chapter 9 bankruptcy.

Why all the problems? Because US states and the politicians running them spent freely before the recession hit. In the 30 years to 2008, spending in US states grew at a compound annual rate of 6.7%, well above the inflation rate.

And the problems are actually worse than they appear on the surface. Actuaries have identified state pension deficits as high as $3 trillion! This is double all annual state spending.

As I discussed in a previous article, pensioners are just going to have to be told to expect much less than was promised...or there will be bankruptcy after bankruptcy.

It is not a pretty picture for most states. But don't tell Wall Street that...they are too busy scooping up billions of dollars from 'pinatas'.


  1. Timely article as we witness the derailment of entire countries due to negligence by Wall Street-ers here in US.

    This NYT article came out today about how Wall Street helped mask the debt in some of these smaller European economies, performed by the likes of Goldman Sachs:

  2. I don't understand why Greece is a huge story. The United States has a far worse situation: $13 trillion national debt, $1.6 trillion deficit, $56 trillion expenditures and liabilities.

    Sure My big fat Greek default is an important situation but the US is a lot worse!