EU Showdown: Greece Takes on the Vampire Squid

Posted on January 6, 2015 by Ellen Brown

Greece and the troika (the International Monetary Fund, the EU, and the European Central Bank) are in a dangerous game of chicken. The Greeks have been threatened with a “Cyprus-Style prolonged bank holiday” if they “vote wrong.” But they have been bullied for too long and are saying “no more.”

A return to the polls was triggered in December, when the Parliament rejected Prime Minister Antonis Samaras’ pro-austerity candidate for president. In a general election, now set for January 25^th, the EU-skeptic, anti-austerity, leftist Syriza party is likely to prevail. Syriza captured a 3% lead in the polls following mass public discontent over the harsh austerity measures Athens was forced to accept in return for a €240 billion bailout.

Austerity has plunged the economy into conditions worse than in the Great Depression. As Professor Bill Black observes, the question is not why the Greek people are rising up to reject the barbarous measures but what took them so long.

Ireland was similarly forced into an EU bailout with painful austerity measures attached. A series of letters has recently come to light showing that the Irish government was effectively blackmailed into it, with the threat that the ECB would otherwise cut off liquidity funding to Ireland’s banks. The same sort of threat has been leveled at the Greeks, but this time they are not taking the bait.

Squeezed by the Squid

The veiled threat to the Greek Parliament was in a December memo from investment bank Goldman Sachs – the same bank that was earlier blamed for inducing the Greek crisis. Rolling Stone journalist Matt Taibbi wrote colorfully of it:

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates.

Goldman has spawned an unusual number of EU and US officials with dictatorial power to promote and protect big-bank interests. They include US Treasury Secretary Robert Rubin, who brokered the repeal of the Glass-Steagall Act in 1999 and passage of the Commodity Futures Modernization Act in 2000; Treasury Secretary Henry Paulson, who presided over the 2008 Wall Street bailout; Mario Draghi, current head of the European Central Bank; Mario Monti, who led a government of technocrats as Italian prime minister; and Bank of England Governor Mark Carney, chair of the Financial Stability Board that sets financial regulations for the G20 countries.

Goldman’s role in the Greek crisis goes back to 2001. The vampire squid, smelling money in Greece’s debt problems, jabbed its blood funnel into Greek fiscal management, sucking out high fees to hide the extent of Greece’s debt in complicated derivatives. The squid then hedged its bets by shorting Greek debt. Bearish bets on Greek debt launched by heavyweight hedge funds in late 2009 put selling pressure on the euro, forcing Greece into the bailout and austerity measures that have since destroyed its economy.

Before the December 2014 parliamentary vote that brought down the Greek government, Goldman repeated the power play that has long held the eurozone in thrall to an unelected banking elite. In a note titled “From GRecovery to GRelapse,” reprinted on Zerohedge, it warned that “the room for Greece to meaningfully backtrack from the reforms that have already been implemented is very limited.”

Why? Because bank “liquidity” could be cut in the event of “a severe clash between Greece and international lenders.” The central bank could cut liquidity or not, at its whim; and without it, the banks would be insolvent.

As the late Murray Rothbard pointed out, all banks are technically insolvent. They all lend money they don’t have. They rely on being able to borrow from other banks, the money market, or the central bank as needed to balance their books. The central bank, which has the power to print money, is the ultimate backstop in this sleight of hand and is therefore in the driver’s seat. If that source of liquidity dries up, the banks go down.

The Goldman memo warned:

The Biggest Risk is an Interruption of the Funding of Greek Banks by The ECB.

Pressing as the government refinancing schedule may look on the surface, it is unlikely to become a real issue as long as the ECB stands behind the Greek banking system. . . .

But herein lies the main risk for Greece. The economy needs the only lender of last resort to the banking system to maintain ample provision of liquidity. And this is not just because banks may require resources to help reduce future refinancing risks for the sovereign. But also because banks are already reliant on government issued or government guaranteed securities to maintain the current levels of liquidity constant. . . .

In the event of a severe Greek government clash with international lenders, interruption of liquidity provision to Greek banks by the ECB could potentially even lead to a Cyprus-style prolonged “bank holiday”. And market fears for potential Euro-exit risks could rise at that point. [Emphasis added.]

The condition of the Greek banks was not the issue. The gun being held to the banks’ heads was the threat that the central bank’s critical credit line could be cut unless financial “reforms” were complied with. Indeed, any country that resists going along with the program could find that its banks have been cut off from that critical liquidity.

That is actually what happened in Cyprus in 2013. The banks declared insolvent had passed the latest round of ECB stress tests and were no less salvageable than many other banks – until the troika demanded an additional €600 billion to maintain the central bank’s credit line.

That was the threat leveled at the Irish government before it agreed to a bailout with strings attached, and it was the threat aimed in December at Greece. Greek Finance Minister Gikas Hardouvelis stated in an interview:

The key to . . . our economy’s future in 2015 and later is held by the European Central Bank. . . . This key can easily and abruptly be used to block funding to banks and therefore strangle the Greek economy in no time at all.

Europe’s Lehman Moment?

That was the threat, but as noted on Zerohedge, the ECB’s hands may be tied in this case:

[S]hould Greece decide to default it would mean those several hundred billion Greek bonds currently held in official accounts would go from par to worthless overnight, leading to massive unaccounted for impairments on Europe’s pristine balance sheets, which also confirms that Greece once again has all the negotiating leverage.

Despite that risk, on January 3^rd Der Spiegel reported that the German government believes the Eurozone would now be able to cope with a Greek exit from the euro. The risk of “contagion” is now limited because major banks are protected by the new European Banking Union.

The banks are protected but the depositors may not be. Under the new “bail-in” rules imposed by the Financial Stability Board, confirmed in the European Banking Union agreed to last spring, any EU government bailout must be preceded by the bail-in (confiscation) of creditor funds, including depositor funds. As in Cyprus, it could be the depositors, not the banks, picking up the tab.

What about deposit insurance? That was supposed to be the third pillar of the Banking Union, but a eurozone-wide insurance scheme was never agreed to. That means depositors will be left to the resources of their bankrupt local government, which are liable to be sparse.

What the bail-in protocol does guarantee are the derivatives bets of Goldman and other international megabanks. In a May 2013 article in Forbes titled “The Cyprus Bank ‘Bail-In’ Is Another Crony Bankster Scam,” Nathan Lewis laid the scheme bare:

At first glance, the “bail-in” resembles the normal capitalist process of liabilities restructuring that should occur when a bank becomes insolvent. . . .

The difference with the “bail-in” is that the order of creditor seniority is changed. In the end, it amounts to the cronies (other banks and government) and non-cronies. The cronies get 100% or more; the non-cronies, including non-interest-bearing depositors who should be super-senior, get a kick in the guts instead. . . .

In principle, depositors are the most senior creditors in a bank. However, that was changed in the 2005 bankruptcy law, which made derivatives liabilities most senior. In other words, derivatives liabilities get paid before all other creditors — certainly before non-crony creditors like depositors. Considering the extreme levels of derivatives liabilities that many large banks have, and the opportunity to stuff any bank with derivatives liabilities in the last moment, other creditors could easily find there is nothing left for them at all.

Even in the worst of the Great Depression bank bankruptcies, said Lewis, creditors eventually recovered nearly all of their money. He concluded:

When super-senior depositors have huge losses of 50% or more, after a “bail-in” restructuring, you know that a crime was committed.

Goodbye Euro?

Greece can regain its sovereignty by defaulting on its debt, abandoning the ECB and the euro, and issuing its own national currency (the drachma) through its own central bank. But that would destabilize the eurozone and might end in its breakup.

Will the troika take that risk? 2015 is shaping up to be an interesting year.

___________

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 200+ blog articles are at EllenBrown.com.

Filed under: Ellen Brown Articles/Commentary | Tagged: ECB, EU, Goldman Sachs, Greek crisis, public banking, troika |

67 Responses

hamiltonlewis@sbcglobal.net, on January 6, 2015 at 9:54 am said:

âThank you Ellen. Hamilton Lewis II MBA, CMT From: WEB OF DEBT BLOGSent: Tuesday, January 6, 2015 10:56To: hamiltonlewis@sbcglobal.netReply To: WEB OF DEBT BLOGSubject: [New post] EU Showdown: Greece Takes on the Vampire Squid

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Ellen Brown posted: “Greece and the troika (the International Monetary Fund, the EU, and the European Central Bank) are in a dangerous game of chicken. The Greeks have been threatened with a “Cyprus-Style prolonged bank holiday” if they “vote wrong.” But they have been bullie”

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- harry, on January 13, 2015 at 5:20 pm said:
  
  Thanks for the info Ellen, wonderful piece.
  
  Reply
Greek Economic Crisis, on January 6, 2015 at 11:55 am said:

[…] Ellen Brown Web of Debt […]

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pm, on January 6, 2015 at 2:11 pm said:

Renounce the debt, abandon the ECB and the euro, issue its own national currency (the drachma) through its own central bank, and breakup the Eurozone to re-establish the sovereignty of Nation States … what was the downside again?

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- Ross, on January 10, 2015 at 10:57 am said:
  
  None from a British perspective. It could throw TTIP, CETA and TiSA into chaos. Sounds just fine to me.
  
  Reply
- harry, on January 13, 2015 at 5:23 pm said:
  
  I hope the whole world blows up and we get out Freedom back that is what it is all about.
  
  Reply
afc999, on January 7, 2015 at 5:48 am said:

Just wondering why any of us reading this believe that the “vote” will not also be controlled to say whatever the media-controlling banksters want it to say. I’d love to see Greece make the UNBELIEVABLY intelligent move of leaving the Eurozone and re-initiating the drachma, but who there has the tomatoes or the power to actually carry it through? As I write, I can hear clearly the assassination and blackmail threats (as well as promises of wealth and power) to those in positions of authority in Greece who would simply betray those who look to them for leadership and protection.

And who might be behind such threats and promises? Of course, we already know who: the derivative-laden (to the tune of >$Quadrillion!!…essentially all of which bets they plan on winning one way or the other, fair or foul, despite the fact that many of the bets are and were against their own clients’ positions…some of which clients are entire countries!!, positions taken on the advice given them by the very bankster institutions betting against them) members of the counterfeit-money-creating, central banks-, governments-, and media-controlling mafioso bankster families and their cronies. I’ll believe that Greece can simply “vote” itself out of the Euro when I see it. More likely is that it would be like the Swiss “vote”–the media will make it look like a possibility up until some “reasonable” point, or perhaps even until the last moment, and then it will be crushed, if they actually even get to a “vote.”

But in the end, even if there were a “vote” it won’t be a real vote, simply some numbers put up on the screen for the world to look at to help it swallow the lie that any of the countries in the Eurozone, in the West, heck, in the world, are in any way under the control of democratic or representative governments anymore. All are controlled by the bankster families and their underlings and proxies, as well as their bought-and-paid-for politicos, who care nothing for the people they supposedly represent–politicos paid for from money created out of nothing, money the average worker must accept and use as payment, money which at every moment becomes more and more worthless as it is diluted to hell to pay those betraying them along with those who spawned the “brilliantly” evil schemes in the first place.

In the meantime, it still remains a fact that opting out of the Eurozone and re-issuing the drachma would be by far the smartest thing for Greece to do (along with Portugal, and Italy, and Spain, and Ireland, etc etc, with their local currencies) and their ONLY way out of the stranglehold the vampire squid and the rest of its vampire bankster family have on the people of this country (and really, of the world). At the least it would be a start…an opportunity to actually catch its breath and maybe even fight these demons that have taken possession of their financial system and country.

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- Helen Callanan, on January 7, 2015 at 7:35 am said:
  
  EXTREMELY WELL SAID..IF PESSIMISM DIDN’T UNDERLINE EVERYTHING YOU SAY! YOUR FINAL PARAGRAPH IS MY THOUGHTS ENTIRELY
  
  Reply
- Wolfgang Knobloch, on January 7, 2015 at 10:49 am said:
  
  Here, in a few sentences, the truth has been laid open, transparent, comprehensive, to the point, and easy to understand.
  Thank you afc999!
  
  Reply
EU Showdown: Greece Takes on the Vampire Squid - The Daily Coin, on January 7, 2015 at 6:14 am said:

[…] by Ellen Brown […]

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Ellen Brown - Greece Takes on the Vampire Squid - PRN.fm - PRN.fm, on January 7, 2015 at 7:03 am said:

[…] Read More […]

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Ercole Vitalone, on January 7, 2015 at 10:51 am said:

Yes Mr. afc999 you are correct and I agree 100% As Italian that lived in Italy since 1977 it breaks my hart looking at the current events. The corruption in Italy (today at the level of 60 billion Euro annually) will never allow the disengagement from the Euro. The international organized crime has too much to lose. My hope is that actual become a realty the return of the Lira, and also, the same can be said for many other Europeans nations that today are in such catastrophic situation.
The Euro was ill conceived right from the beginning. It was design to divide and conquer never for the benefit of humankind. Another hope is that we do not need the use of force like in Ukraine, to restore what once was a good enough system but not perfect.

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» EU Showdown: Greece Takes on the Vampire Squid Olduvai.ca, on January 7, 2015 at 11:17 am said:

[…] EU Showdown: Greece Takes on the Vampire Squid […]

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Peak Crackers, on January 7, 2015 at 2:14 pm said:

They dropped the Bail in on Canadians back in 2013 midnight move action
Bail-in involves restructuring the liabilities of a distressed financial institution by writing down debt and/or converting it to equity.In effect, bail-in creates equity by reducing liabilities.
LOL.. ( coughs what F**^ing bullshit)

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EU Showdown: Greece Takes on the Vampire Squid | Atlas Monitor, on January 7, 2015 at 8:49 pm said:

[…] Brown | Web of Debt | 6 Jan […]

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Michael Kenny, on January 8, 2015 at 8:48 am said:

What’s interesting is that, as is clear from the last paragraph, Ms Brown doesn’t really beleive that Greece will abandon the euro or that the eurozone (now, with Lithuania,19 Member States) will break up. Incidentally, Syriza is strongly pro-EU and pro-euro.

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EU Showdown: Greece Takes on the Vampire Squid, on January 9, 2015 at 2:08 pm said:

[…] READ MORE HERE […]

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Το ξεμασκάρεμα της Ε.Ε.: Η Ελλάδα εναντίον του χρηματοπιστωτικού βαμπίρ | ΣΕΙΣΑΧΘΕΙΑ, on January 10, 2015 at 4:52 am said:

[…] Διαβάστε ολόκληρο το άρθρο, στα αγγλικά, εδώ. […]

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EU Showdown: Greece Takes on the Vampire Squid | Radio Free, on January 10, 2015 at 10:25 am said:

[…] This piece first appeared at Web of Debt. […]

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Greece Takes on the Vampire Squid - Truthdig - Trendingnewsz.com, on January 11, 2015 at 5:41 am said:

[…] This piece first appeared at Web of Debt. […]

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The Rickles, on January 13, 2015 at 7:04 am said:

Looks like semi-mainstream media is now addressing the issue of banks creating money and debt. Here is a Daily Kos article on the topic :

http://www.dailykos.com/story/2015/01/13/1357390/-Creating-money-out-of-thin-air

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Thaddeus Thurston Thistlethwaite III, on January 13, 2015 at 10:05 pm said:

Jesus threw the money changers out. ‘Tis what needs to be done everywhere. What shameless bastards they all are…

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sammy m, on January 15, 2015 at 12:13 pm said:

I’m trying to get something out of the National Credit Union Administration (NCUA) in the way of a press release on their exemption from the recent Dodd-Frank rollbacks which I gather affect FDIC accounts only. Any one have any info on relative safety?

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Showdown: Greece Takes on EU | We Are Change, on January 25, 2015 at 1:40 am said:

[…] By Ellen Brown Web of Debt […]

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ΤΟ ‘ΜΕΜΟ’ ΤΗΣ GOLDMAN SACHS… | Makroskόpos, on February 6, 2015 at 12:49 am said:

[…] https://ellenbrown.com/2015/01/06/eu-showdown-greece-takes-on-the-vampire-squid/ […]

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Swimming with the Sharks: Goldman Sachs, School Districts, and Capital Appreciation Bonds | WEB OF DEBT BLOG, on February 20, 2015 at 10:14 am said:

[…] when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that […]

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North Dakota Schools, on February 20, 2015 at 5:10 pm said:

[…] when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that […]

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Swimming with the Sharks: Goldman Sachs, School Districts, and Capital Appreciation Bonds | Joseph Davis, on February 21, 2015 at 7:12 am said:

[…] when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that […]

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Ellen Brown ~ Swimming With The Sharks: Goldman Sachs, School Districts, And Capital Appreciation Bonds | Shift Frequency, on February 21, 2015 at 9:11 am said:

[…] when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that […]

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Swimming with the Sharks: Goldman Sachs, School Districts, and Capital Appreciation Bonds | PushBack, on February 21, 2015 at 9:32 am said:

[…] when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems […]

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Swimming with the Sharks: Goldman Sachs, School Districts, and Capital Appreciation Bonds | RIELPOLITIK, on February 21, 2015 at 8:25 pm said:

[…] Remember when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that […]

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Goldman Sachs Acts As Economic Hitman Against Public School Districts | World Liberty News, on February 22, 2015 at 9:55 am said:

[…] when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that […]

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On Goldman Sachs, Pension Funds And Why John “I’m A Dolphin” Key Calling Russell Norman A Muppet Is Important | Aotearoa: A Wider Perspective, on February 22, 2015 at 1:17 pm said:

[…] when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that […]

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Goldman Sachs Acts As Economic Hitman Against Public School Districts | Living For Longer, on February 22, 2015 at 11:06 pm said:

[…] when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that […]

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Ellen Brown: Goldman Sachs Acts As Economic Hitman Against Public School Districts « The Culture of Awareness, on February 23, 2015 at 12:12 am said:

[…] when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that […]

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