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Apr. 6 2010 - 10:13 am | 21,314 views | 7 recommendations | 102 comments

The No-Pay Movement

Often also called an activist, Mr. Keiser created quite a stir a few days ago when, on an Al Jazeera program, he claimed that Greece, for the past decade, has fallen victim to the “economic terrorists” of the Wall Street banking systems and the IMF. In the interview which followed, he claimed “if the Greeks want to be protected from the IMF, then they should nationalize their banks thus establishing government owned institutions so as to revive the banking system”, while at the same time “ceasing to pay back the loans which were issued illegally” via “cooking the books” of the Greek economy by Goldman Sachs. He proposed the expulsion from the country of American banks as well as the IMF. The consequence will be “two or three years of heavy recession”, during which time Greece will be able “to rebuild its economy”, ensuring its economic independence.

via The IMF Flag Reads: ECONOMIC SLAVERY.

Since I started covering the financial crisis a year and a half ago, I’ve been getting a lot of letters that say things like, “This all sucks. But what should we do about it? If you don’t have any answers, what’s the point?”

I don’t want to get into this too much since I have more on this coming out in my book, but I would like to point out some of the answers other people are providing to this question. One is this above plan from the hilariously blunt Max Keiser, whose “Goldman Sachs are scum” interview was one of the comedy highlights of 2009.

Keiser in an interview basically says that the debts countries like Greece owe to banks like Goldman, Sachs for loans and rate swaps are illegitimate since they were criminal deals, made with the intent to cook Greece’s books and defraud the citizens of Greece out of their tax money. He therefore proposes that Greece should simply stiff Goldman for those obligations and that, furthermore, American banks should be expelled from the country while the government temporarily nationalizes its banking system and establishes its independence from the financial services industry.

I’m not sure I know enough about what the consequences of a plan like that would be to say whether this is feasible or not. But I think Keiser’s idea does underline an important point about the situation, which is that as powerful as these Wall Street banks may seem, they are also exquisitely vulnerable. Right now virtually all of them are dependent upon the government keeping accounting standards lax enough for all of them to claim to be functional businesses. It is generally accepted that if the major banks on Wall Street were forced to mark all of their assets to market tomorrow, they would all be either insolvent or close to it.

Thus their “healthy” financial status is already illusory. So imagine what would happen if large numbers of those dubious loans on their balance sheets that they have marked down  as “performing” were suddenly pushed ahead of time into the default column. What if Greece, and the Pennsylvania school system, and Jefferson County, Alabama, and the countless other municipalities and states that are wrapped up in these corrupt deals just decided to declare their debts illegitimate and back out?

I think it’s an interesting question and would like to hear what knowledgeable people in the field have to say about it. But the big picture, to me, is that these companies are almost totally dependent not only upon the continued good faith of aggrieved debtors, but upon the government recognizing the (sometimes fraudulent) loans made to those debtors as fully performing. I’m waiting for some canny politician to use those two facts as a hammer to make them all get in line. Thoughts?


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  1. collapse expand

    We all know here in America that if any peon decides he’s not going to make his car or house payments the bank takes them away. But if a city, county or country decide they are tired of being ‘held at gunpoint’ by some opportunistic thug like Goldman Phuque or Chase it would be virtually impossible for them (banksters) to take control of an entire country. I’m damn close to being a financial illiterate so I have no idea what kind of laws are in place to allow banksters to win a showdown like this, but from my viewpoint it might be damned interesting to try it.
    I say it’s time for Jefferson County and Greece to burn their collective bras :-) !

  2. collapse expand

    Matt,
    Before anyone can really gauge the impact this move would have on Greece, I think some pertinent information is missing.

    Were Greece to nationalize their banks, would they stay on the Euro? The increase in capital being made available from being freed of these debt payments is surely helpful, but their internal economy is being wrecked by austerity programs already being implemented. If the citizens don’t have jobs, there will be no internal demand, meaning they will have to focus on exporting. But without the ability to manipulate their currency downward in order to make their exports attractive, it seems nationalization will only isolate them in a stuck economic mess. They cannot issue new debt, as they would be in violation of EU by-laws on debt ceilings, and their new debt is running a 7.5%, 10 year yield as it is. Should they default on their current debt, that rate can only go higher than the unsustainable level it is. Without the ability to issue and manage currency, this does not seem like a good move for Greece.

    But should they issue their own currency, they would lose membership in the EU, and all the perceived benefits that brings. Is this a move Greece is willing to make? If they stay, they wind up looking like Latvia or Lithuania. If they go, they are a small nation with economic issues who upset a powerful political equilibrium with major clout among the Western elites.

    Are the savings from “no-pay” enough to bring back an adequate number of jobs to internally rescue the Greek economy and avoid a major political shake-up? And how would the EU, a major supporter of the capitalistic system that created entities like Goldman Sachs, treat Greece were they to turn their back on the payments and the austerity programs they were forced into via German bailouts?

  3. collapse expand

    Goldman didn’t loan money to Greece.

    Goldman made its fees by creating structured financial arrangements that allowed Greece to borrow money “off the books” and finding partners willing to loan the money using those arrangements.

    Those partners could be other governments or large institutional investors like pension funds.

    If Greek defaults on its obligations, it won’t hurt Goldman.

  4. collapse expand

    For a creative solution to public or private debt crises…

    I did a complete excerpt of the section called: Unsustainable Levels of Debt from John Ralston Saul’s A Doubter’s Companion.

    http://lesstewart.wordpress.com/2010/04/13/unsustainable-levels-of-debt-by-john-ralston-saul/

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