Harsh fiscal austerity for Main Street and bailouts for the bankers. Sound familiar? Well that’s what we have here in this massive European bank bailout. The countries of (particularly Southern) Europe will now be forced into a government imposed recession and the bankers will be made whole. Michael Hudson calls the bailout exactly what it should be called – TARP for German and other European bankers:
“The “Greek bailout” should have been called what it is: a TARP for German and other European bankers and global currency speculators. The money is being provided by other governments (mainly the German Treasury, cutting back its domestic spending) into a kind of escrow account for the Greek government to pay foreign bondholders who bought up these securities at plunging prices over the past few weeks. They will make a killing, as will buyers of hundreds of billions of dollars of credit-default swaps on the Greek government bonds, speculators in euro-swaps and other casino-capitalist gamblers. (Parties on the losing side of these swaps now will need to be bailed out as well, and so on ad infinitum.)”
And just like in the United States, this bailout does nothing to resolve the actual long-term structural flaws that caused this whole mess to begin with. This is why, as Stephen Roach puts it, the crises are becoming larger and more frequent. And so here we are again. Stocks rally, bond yields come in, spreads tighten, bankers start counting their bonuses and the unemployment rate continues to tick higher ALMOST TWO YEARS AFTER LEHMAN BROTHERS! Ultimately, this system of Ponzi finance will reach its tipping point and at the rate we’re going the house of cards is going to be too large for any government to catch after it inevitably falls. Get your popcorn ready. If Stephen Roach is right then the next crisis should be just around the corner – assuming it isn’t already unfolding.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.