Suppose someone imported contaminated milk from China. Could he, if caught, invoke the free market principles to pursue his trade? Certainly not. However, the executives who issued sub-prime mortgages in the USA and spread them to unsuspecting customers by including them in various innocent-looking packages – a practice (mis)named securitisation – got away with murdering financial stability all over the world. To ask for better policing of this market is not harming free enterprise but ensuring its survival.
These investment bank whiz kids, who designed an opaque and highly unregulated way to lend money to people who could not pay it back, really set up a huge pyramid scheme which blew up in everybody’s face. The greedy bankers who sold these ‘toxic’ products are certainly to blame but so are the greedy mortgage brokers who peddled these loans just to make a commission. No doubt steps must be taken to end such practices that have led to the present credit crunch..
The American film company ‘20th Century Fox’ is already working on a sequel to its famous 1987 classic ‘Wall Street’ in which Michael Douglas won an Oscar, portraying Gordon Gekko the predator-in-chief of the junk bond boom. One blogger suggested that this time Mr Gekko must be shown leading markets out of their slump. ‘But he would need a new vocabulary’ notes the Economist that ran the story in its 18 October issue. ‘His era-defining catch phrase in the original, Greed – for lack of a better word – is good jars in these harsh times. Greed – provided it is sufficiently regulated – is tolerable, might be more appropriate’. The truth is, of course, that the ‘creative destruction’ which, according to Joseph Shumpeter, writing in 1940, is in the nature of capitalism is once again coming into play on a global scale this time. When Mr Alavanos of SYRIZA explodes against the Government in the Greek Parliament shouting: ‘We have a crisis of capitalism and you say long live capitalism!’ he simply expresses his furious anger that the system he hates makes progress both through innovation and through failure.
The opposition attacked the Government for its bill that makes available to the nation’s banks the sum of twenty eight billion euros (at 10% interest) to ease the lending crisis. Once again Greeks were served the usual tales of woe about a populace that suffers while greedy bankers are being bailed out by taxpayers’ money. Karamanlis did explain, to no visible effect, that the 28 billions were no gift and that the Greek state would eventually even make a profit once the shares it had bought with this sum started to increase in price.
This columnist is no expert but talking to people in the trade he got a totally different picture from that which emerged from the parliamentary debate on the subject. The Greek banks, he was told, are nowhere like the European ones and far from having reached the end of their tether. They make good money and need no emergency aid to survive as they have not, on the whole, been exposed to ‘toxic’ products. If some smaller ones are facing difficulties – which they did long before the recent credit crunch – they can disappear unlamented.
Question: – So why is the Government proposing a law to help banks that are such paragons of health?
Answer: – Because, as it says, it wants banks to continue to lend to Greek small business and consumers at good rates, to get the economy moving and help it face its looming budget deficit. However, nowhere in Europe has Government assistance to the banks come automatically, hand in hand, with Government participation in the capital of these banks. As it happens, the major Greek banks do not need bailing out by any state aid like the UK banks while they and their foreign investors reject government interference, especially as this will entail the appointment of a civil servant on their boards armed with the power of veto on banking policy in general and on personnel management in particular including giving jobs to ‘our boys’. As it happens, the only banks in Greece that have purchased ‘toxic’ products, had the lowest profits, and the worst possible management are the ones where the state is already a majority holder i.e. the ‘ATE Bank’ and the ‘Hellenic Post Bank’. No wonder that they are the only ones to have embraced the Government plan. So let the Government bail out its own failed banks but do no harm to the private ones.
This conversation took place before the rescue plan went into effect. A few days later, when the private banks let it be known that their attitude to it was ‘thanks but no thanks’, the above views were vindicated. Then something odd happened. The head of the Greek trade union movement, namely the General Secretary of the General Confederation of Greek Workers (GSEE), came out on 3 November accusing the banks of failing to accept the 28 billion euro package of state help that would allow them to continue lending to the Greek workers in need. These people are amazing. First they accuse the Government of enriching the banks through taxpayers’ money and then they accuse the banks of refusing to be so enriched…. Go figure…
One thing seems clear. For the Greek state contriving to control private corporations greed has never been good…
Mark Dragoumis