Moral Outrage
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Following the Money in the European Debt Crisis

Greece, Ireland, Portugal, Spain, and Italy are said to be cases of out-of-control people who now must get their houses in order – by way of huge cuts to government programs. Yet these cuts, known in the jargon as austerity measures, represent political crimes of equal if not greater magnitude to that burglary at the Watergate.

Consider as of the middle of 2011, German banks had loaned out about 170 percent of their total equity capital to governments in Greece, Ireland, Portugal and Spain. French banks had about a 100 percent capital exposure to the same governments. U.S. banks meanwhile, hold about $700 billion of government debt from the five shakiest Eurozone economies.

We are, in short, very close to seeing “World Financial Crisis: The Sequel,” a disaster with enormous implications. Yet, where is the investigative reporting about the underlying causes of this? In the absence of serious analysis, we are repeatedly subject to thoroughly moronic reports blaming the people of indebted nations for the mess. It’s like the scapegoating of poor people in the U.S. who took out subprime mortgages, while the real problem was predatory lending to boost financial profits.

Pretty much the same thing happened in Ireland, Spain and Britain. Banks in Germany and France sent their salespeople to sell loans to governments and banks in other parts of Europe. Now, those same banks are watching in horror as their loans turn sour, just as real estate loans did in the U.S. a few years earlier, and they too are blaming the borrowers.

Worse, just as they did in 2008-9, governments are rushing to rescue rickety banks with public funds. That’s why the European Central Bank, the IMF and Europe’s leading powers keep bailing out ailing states like Greece, Ireland and Portugal. Again: follow the money. When debt-strapped governments receive hundreds of billions in new loans, that money is immediately sent into the coffers of private banks as payments on past loans. The whole situation, observes one writer in the Financial Times, “resembles a pyramid or Ponzi scheme” in which original lenders are paid back with new loans. The difference is that the new loans are coming from public funds, which is another way of saying that private banks are being rescued once more by the people. Just as in the global bank crisis of 2008-9, bank profits are private, but their losses are public.

The scale of this cozy deal is breathtaking. In July, the U.S. Government Accountability Office published a document detailing the bank bailouts. Between December 2007 and July 2010, it shows, more than $16 trillion was channeled by the American government into U.S. and European banks. Trillions more were spent to bail out U.S.-based auto corporations and to fund stimulus programs. Additional trillions were dished out in bank rescues and stimulus programs in China, Latin America, Europe, and beyond.

[Excerpt of article by David McNally, political science teacher at York University, Toronto]

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