This is another sad tale of shooting the messenger.
Without fail, governments always blame speculators for their economic woes. I can't think of a time when that has not occurred. In fact our own government is engaging in the same thing. Speculators are called "wolves," "jackals," "parasites," and even "capitalists" on occasion.
But for Mr. George Papandreou to have the gall to blame the wolves for Greece's problems is not only an outrageous lie but is a display of ignorance. One could correctly conclude that he is just another slimy politician trying to hold on to power.
Here's what he said on "Fareed Zacharia GPS" on Sunday:
Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis, Prime Minister George Papandreou said.
“I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of U.S. banks in the crisis, in an interview on CNN’s “Fareed Zakaria GPS.” ...
“Greece will look into the past and see how things went,” Papandreou said. “There are similar investigations going on in other countries and in the United States. This is where I think, yes, the financial sector, I hear the words fraud and lack of transparency. So yes, yes, there is great responsibility here.” ...
In the CNN interview, Papandreou said many in the international community have engaged in “Greek bashing” and find it easy “to scapegoat Greece.” He said Greeks “are a hard-working people. We are a proud people.”
“We have made our mistakes,” Papandreou said. “We are living up to this responsibility. But at the same time, give us a chance. We’ll show you.”
That is pathetic. They've never lived up to their responsibilities, they have defaulted before, and I believe they will default again. Mr. Papandreou and his (and his father's) socialist PASOK party (Panhellenic Socialist Movement, or Panellinio Sosialistikó Kínima) were responsible for the massive spending and welfare programs that are now hobbling Greece.
Let's back up a moment and learn a bit about the Papandreous, father and son. Father Andreas was the son of Geórgios, a leading political figure prominent in the anti-monarchist movement. In the Sixties he was premier and espoused many socialist policies. He was supported in his cabinet by his son Andreas. A military coup kicked George and his son out and ruled until 1974 which is when Andreas founded PASOK. Andreas was premier during much of the 1980s and 1990s until he died in 1996.
Andreas was responsible for most of the socialist policies that included national health care and generous pensions and benefits. They paid for them by running deficits and borrowing the money. Andreas was also very anti-American, disliked the U.S.'s influence in the world and wanted U.S. bases in Greece closed. According to the Wikipedia article, he said that the 'USSR is not a capitalist country 'one cannot label it an imperialist power.' According to Papandreou, 'the Soviet Union represent[ed] a factor that restrict[ed] the expansion of capitalism and its imperialistic aims'. There's an enlightened man.
I should say that father and son are U.S. citizens. Andreas was kicked out of Greece by the dictatorship in 1938 and landed in the U.S. and got his Ph.D in economics at Harvard in 1942. In 1943 he joined the Navy and served as a nurse during the War and became a citizen. After the War he taught economics at the University of Minnesota, Northwestern University, the University of California, Berkeley (where, fittingly, he was chair of the Department of Economics), Stockholm University and York University in Toronto.
Son George (known as Giórgos, to distinguish him from his grandfather Geórgios) was born in St. Paul, Minnesota in 1952. George speaks perfect American English. He was educated at "Amherst College in Massachusetts, Stockholm University, the London School of Economics and Harvard University. He has a Bachelor of Arts degree in sociology from Amherst and a Master's degree in sociology from the LSE. He was a researcher in immigration issues at Stockholm University in 1972-73." In 2006 he became president of the Socialist International, whose members consist of socialist parties around the world (for an interesting list, see here). In 2004 and again in 2009 Giórgos was elected premier.
The Papandreou family doesn't understand a thing about economics. Giórgos might know a bit of Keynes, but I can assure you has has no real knowledge of classical liberal economics, much less Austrian theory. In other words, a whole intellectual movement which challenges his socialist ideas has eluded him. This is especially significant in light of the drastic failures of socialist economies. I can assure you that many, if not most Austrian theory economists have an excellent working knowledge of socialism.
We all know that politicians scapegoat others to evade responsibility for their mistakes. So they go after speculators. Any claim that speculators are responsible for Greece's woes is a lie. What speculators do is seek and find the true(r) values of overvalued assets. They can make good money doing this and they should. If it weren't for the wolves, we ordinary investors might be suckered into buying these overvalued assets. The quicker it's done, the better it is for the markets because it prevents the misallocation of capital which would be otherwise used to invest in productive assets.
For the weeks before the EU adopted the €750 billion bailout speculators were hammering the euro, Greece's bonds, and European banks who were big lenders to the PIIGS. The politicians didn't like this revelation of truth:
The Committee of European Securities Regulators said on May 7 it was investigating “exceptional volatility” in the markets and would work with other regulators, including the U.S. Securities and Exchange Commission, as part of a coordinated clampdown.
And it is not over. The wolves are back at it. An article in Bloomberg today shows that the market doesn't trust the politicians:
Money markets are showing rising levels of mistrust between Europe’s banks on concern an almost $1 trillion bailout package won’t prevent a sovereign debt default that might trigger a breakup of the euro.
Royal Bank of Scotland Group Plc and Barclays Plc led financial firms punished by rising borrowing costs, British Bankers’ Association data show. The cost to hedge against losses on European bank bonds is 62 percent higher than a month ago. Investment-grade corporate debt sales in the region plummeted 88 percent last week to $1.2 billion from the previous period, according to data compiled by Bloomberg.
The rate banks say they charge each other for three-month loans in dollars rose to a nine-month high, even after a government-led rescue designed to prevent Greece from defaulting, and a new financial crisis. The euro fell to its weakest against the dollar since 2006.
Bank lending “conveys a lack of trust in the system,” said Robert Baur, chief global economist at Des Moines, Iowa- based Principal Global Investors, which manages $222 billion. “Banks are a little reluctant to lend overnight as they don’t know the full extent of what is on the bank balance sheets.” ...
Deutsche Bank AG Chief Executive Officer Josef Ackermann said Greece may not be able to repay its debt in full, and former Federal Reserve Chairman Paul Volcker said he’s concerned the euro area may break up. Sony Corp., the world’s second- largest maker of consumer electronics, said it may suffer a “significant impact” if Europe’s deficit spreads, while Chinese Premier Wen Jiabao said the foundations for a worldwide recovery aren’t “solid” as the sovereign-debt crisis deepens.
The wolves are correct. The market will eventually reveal the truth.
Disclosure: No poistions