I can’t sleep, so I’m watching Bill Moyers and Matt Taibbi… which isn’t helping

    Bill Moyers’ most recent show was about how big banks are victimizing democracy. If you’re looking to get to sleep tonight, I’d suggest watching something else.

    Here’s a clip:

    BILL MOYERS: Both of you have been writing a great deal lately about the crisis in Europe. So explain to us simply what hand Wall Street has in what’s going on in Italy, Greece, and Spain today and why we should care.

    YVES SMITH: Well, I almost want to go one step of abstraction higher because people tend to focus on the immediate ways Wall Street was involved like Goldman Sachs helped Greece cover up how serious its deficits were.

    MATT TAIBBI: Which in the situation, it was very similar to Jefferson County, by the way.

    YVES SMITH: Right. But the more important story is much higher, which is that the reason the big reason that all, you have basically a sovereign debt crisis, that the governments in Europe, many of them had to borrow a tremendous amount of money in the wake of the crisis. And the euro zone is not well set up to adapt to that. I could go into technical reasons why, but it’s not unlike a state.

    You know, when a state has a budget problem that suddenly they have to think about, you know, cutting costs and doing all kinds of draconian measures. And while maybe a state or a city can do that, you can’t have the biggest economy in the world. I mean, Europe is the biggest economy in the world doing that and not have it basically turn into a down spiral, that you cut spending and then that leads to less income.

    And your deficits get worse rather than better. So, but the reason they had that problem is, in fact, very directly the result of the financial crisis. That you had countries that weren’t running deficits, government deficits like Ireland and Spain, that were held up as poster children before the crisis of doing things right.

    And that when the crisis hit, you both had a big drop in tax revenues. You had bank bailouts. And these countries had decent social safety nets so that, you know, things like, you know, unemployment insurance went up. And so the budget crisis they’re having is the direct result of the financial crisis. And yet it’s somehow being treated as if they’re separate events. Like somehow these governments were profligate and that borrowers were irresponsible –

    MATT TAIBBI: Social safety net.

    YVES SMITH: Safety net.

    MATT TAIBBI: Exactly. Right. That’s clearly going to be the place that is going to take the brunt of the damage. I mean, I think the most direct example here in America was a lot of unions and state pension funds were primary victims of the sort of broad fraud scheme to sell fraudulent mortgage backed securities.

    So they, a lot of these institutional investors were buying these bad mortgages, huge pools of mortgages from all these, the usual suspects, the big banks. And then when they decreased in value and suddenly there they don’t have, it’s harder for them to meet their obligation and suddenly the finger is pointed at them and everyone saying, “Oh, look at those pens, the state pensioners or look at those union employees, they’re they cost too much money. We have to cut their services. We have to cut pensions. We have to do all these things.”

    Whereas, in fact, they were buying a fraudulent product from Wall Street and that’s why they’re in such bad shape now. And I think, but politically, the direction is always going to be let’s blame-

    BILL MOYERS: The poor.

    MATT TAIBBI: That person. The poor.

    BILL MOYERS: The guy on the pension. The woman on the pension –

    MATT TAIBBI: Right. And we’ll never point the finger in the other direction.

    YVES SMITH: Well, in fact, the implications, that’s true. But the implications are actually quite grim, and they’re not being discussed honestly. We’re talking about old people dying faster. We’re talking about children being homeless and not getting education, and we’re talking about grim outcomes like that.

    And they’re not even part of the discourse. I mean, you look, Greece is the extreme example. But in Greece, the hospitals are breaking down. Garbage is not being picked up. And if you look at the results of the last election, what you saw is even with the efforts to scare people into staying in the euro, you see this polarization where the Nazi Party got seven percent of the vote even after there was an incident in a TV station where there was literally an on-air fight where a Nazi Party member beat up on somebody basically I think it was on camera, you know?

    So you’ve got a real social polarization with radicalization going on. And I’ve seen a number of reports out of Greece saying that it’s basically on knife edge of breakdown.

    BILL MOYERS: Could it happen here?

    YVES SMITH: If things, if we have another crisis and things aren’t addressed, I could see this definitely happening maybe not nationally but in significant regional pockets. I mean, you know, this is a country full of guns. And people don’t like to think about what happens when people are pushed, you know, I mean, the kind of random violence, the sort of, you know, going postal phenomena?

    [This post has been brought you by the billionaires of the plaet earth, and our elected leaders who aspire to follow in their footsteps.]

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      3 Comments

      1. Meta
        Posted June 27, 2012 at 10:46 am | Permalink

        Taibbi added the following at his Rolling Stone blog.

        Just to clarify, since I had a few queries last night: when I said that the Greek situation was similar to Jefferson County, what I meant was that both deals involved governments getting into complex swap deals in order to mask current debt problems and/or push them into the future. Obviously the specifics were different (JeffCo was interest rate swaps, Greece was cross currency swaps), but the basic idea was similar, with similar results, i.e. both deals eventually blew up on politicians who inherited the messes created by predecessors in conjunction with unscrupulous investment banks.

        Read more:
        http://www.rollingstone.com/politics/blogs/taibblog/taibbi-joins-yves-smith-on-moyers-20120625#ixzz1yztmI5rl

      2. Brainless
        Posted June 27, 2012 at 12:41 pm | Permalink

        “…both deals eventually blew up on politicians who inherited the messes created by predecessors in conjunction with unscrupulous investment banks.”

        skrrriiiiiiiix: Water Street. Paging, Mr. Water Street….

      3. Eel
        Posted June 28, 2012 at 8:14 am | Permalink

        I did not know that Greece had a Nazi party. The rest of my morning will be spent on Google.

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