Finance capital and the Greek debt crisis

[Hannah Bell]

In a recent essay, Financial Times journalist Lucas Zeise writes: "Two years have passed since the outbreak of the property and financial crisis, yet there has been no progress in the regulation of the banking and financial sectors. Worse still, a serious start has not even been made. This diagnosis… applies equally to the US, the European Union, and at the level of international regulation."

The failure of governments across the world to regulate the financial markets is an expression of the extent to which the major banks dictate government policy.

According to an analysis prepared by the Bank of England, state intervention in support of banks in the US, the UK and the eurozone has totaled $14 trillion. This sum represents ******A QUARTER OF GLOBAL GROSS DOMESTIC PRODUCT (GDP)*******


Credit default swaps are insurance-like contracts that permit banks and hedge funds to place bets on whether or not a company, or even a country, will default on it debts. The nature of CDS trading, which is unregulated, is such that CDS speculators have an incentive to push companies or countries toward bankruptcy. According to one analyst, "Its like buying fire insurance on your neighbor's house—you create an incentive to burn down the house..."

The overall amount of insurance on Greek debt hit $85 billion in February of this year. One year earlier, the same figure stood at $38 billion.

The surge in such types of trading invariably drives up the cost of insuring Greek debt. The cost of insuring Greek bonds nearly doubled in February compared to early January. This, in turn, worsens the budgetary plight of the country and brings closer the specter of default — and a jackpot for CDS speculators...

http://www.wsws.org/articles/2010/mar2010/pers-m06.shtml

[cutlassmama]

1. Goldman Sachs once again...