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<DIV style="FONT: 10pt arial">----- Original Message -----
<DIV style="BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A
title=tanstl@aol.com href="mailto:tanstl@aol.com">David Sladky</A> </DIV>
<DIV><B>Sent:</B> Monday, December 26, 2011 1:34 PM</DIV>
<DIV><B>Subject:</B> Fwd: Crush Labor and Impose Austerity - Draghi’s Real Goal
in the Eurozone</DIV></DIV>
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<DIV dir=ltr><FONT size=2>Weekend Edition December 23-25, 2011 <BR><IMG
src="http://www.counterpunch.org/images/printer.gif" width=288
height=96>a<BR></FONT><U><FONT color=#0000ff size=2><FONT color=#0000ff
size=2>13</U></FONT></FONT><FONT size=2> <BR>Crush Labor and Impose Austerity
<BR></FONT>
<H1>Draghi’s Real Goal in the Eurozone</H1><FONT size=2>by MIKE WHITNEY
<BR>Imagine if your banker offered to lend you a $150,000 to make up for the
money that you’d lost on your home since the housing bubble burst in 2006. And,
let’s say, he agreed to lend you this money for 3 years at rock-bottom rates of
1 percent provided that you post the contents of your garage (ie. rusty bikes, a
bent basketball hoop, an old dollhouse, and rodent-infested luggage) as
collateral on the loan.<BR>Would that seem like a good deal to you?<BR>On
Wednesday, the European Central Bank (ECB) made this very same offer to over a
hundred underwater banks in Europe, awarding them $640 billion (489 euros) in
dirt-cheap 3-year loans in exchange for all manner of dodgy collateral for which
there is currently no market. Now you, dear reader, know that when you try to
sell something on Craig’s List and there’s very little interest; you have to
drop the price in order to attract a buyer. That’s just how supply-demand
dynamics work in a free market, right?<BR>Au contraire. In fact, this rule never
applies to bankers. When the junk assets on a bank’s balance sheet begin to fall
in value, the banks just ring-up their big brother at the ECB or the Fed and
demand a bailout, er, I mean, "swap liquidity for collateral that is temporarily
impaired." But the truth is, the garbage that the banks have
accumulated–particularly the sovereign bonds from Italy, Spain, Greece, etc–is
not merely "impaired". These bonds will never regain their original value
because the loans were made at the peak of a bubble. So, there’s as much chance
that Greek bonds will bounce back in three years as there is that that tacky
$650,000 McMansion you bought in Encinito in 2005 will claw its way back to
par.<BR>That’s not going to happen.<BR>So, the $640 billion that the ECB forked
out on Tuesday, is basically a whopping-big gift to the banksters that will
probably never be repaid. And if you have any doubt about this, then just take
look at the Fed’s balance sheet which has exploded to nearly $3 trillion. You’ll
notice that the $1.45 trillion in mortgage-backed securities (MBS) that Bernanke
bought from the banks two years ago has not gone down at all, mainly because no
one in their right-mind would buy these turkeys. And, if the Fed were to put
their stash of MBS up for auction; the sale would further depress the assets on
the banks balance sheets triggering another financial crisis. (In fact, this
actually happened about a year ago when the<IMG alt=""
src="http://www.counterpunch.org/wp-content/uploads/2011/11/hopelesscov.jpeg"
width=175 height=256> government experimented with bonds from the AIG fund. Not
only did the auction fail, but it also sent the equities markets into a
nosedive) So, just as the Fed will eventually have to account for the losses on
their pile of MBS, so too will EU banks have to writedown the losses their
sovereign bonds. That will push many of the banks into bankruptcy, which will
undoubtedly trigger another round of loans. When financial institutions are
insolvent, their only choice is to extend and pretend. Obviously, the ECB sees
its job as helping with this fakery.<BR>This is a familiar pattern with central
banks. They create the easy money and loose regulatory environment where bubbles
emerge, and then they provide "limitless" liquidity so their friends don’t lose
money on the inflated value of their assets. That’s what Tuesday’s $640 billion
boondoggle was really all about, propping up toxic bonds that are worth a mere
fraction of their original value.<BR>So far, though, Draghi’s Long-Term
Refinancing Operation (LTRO) has been a spectacular flop. While interbank
lending rates have dropped ever-so-slightly (3-month Euribor fell from 1.404 to
1.410 percent), the banks have not been using the loans to buy more sovereign
bonds (which would push down bond yields for struggling sovereigns) or to
increase their lending. Instead, they’ve parked a good portion of the money in
overnight deposits at the ECB. Here’s the scoop from the <I>Wall Street
Journal</I>:<BR></FONT>
<BLOCKQUOTE>"Use of the European Central Bank’s overnight deposit facility
reached a new record high for the year Thursday, suggesting recent measures by
central banks and policy makers still aren’t enough to restore confidence in
inter-bank lending markets.</BLOCKQUOTE>
<BLOCKQUOTE>Banks deposited €346.99 billion ($453.38 billion) in the overnight
deposit facility, up from €264.97 billion a day earlier and a previous high
for the year of €346.36 billion, reached earlier this month.</BLOCKQUOTE>
<BLOCKQUOTE>The high level reflects ongoing distrust in inter-bank lending
markets, where banks prefer using the ECB facility as a safe haven for excess
funds rather than lending them to other banks.</BLOCKQUOTE>
<BLOCKQUOTE>The high deposit level also suggests markets aren’t fully
convinced that the ECB’s massive long-term loan allotment is enough to fortify
the currency bloc’s banking sector. The central bank extended nearly half a
trillion euros in long-term loans to euro-zone banks Wednesday, hoping to ease
fears of a new credit crunch as banks struggle to borrow from markets." ("ECB
Overnight Deposits Reach New 2011 High", Wall Street Journal)</BLOCKQUOTE><FONT
size=2>Can you believe it? So, while most of the loans were used to roll over
existing debt, $453.38 billion was stuck back in the vaults of the ECB for
safekeeping. In other words, the banks are just as distrustful of each other as
they were before the lending facility was launched. And the same is true of the
yields on Spanish and Italian debt which Draghi thought would drop after he
pumped a half a trillion euros into the banking system. Here’s the story from
Reuters:<BR></FONT>
<BLOCKQUOTE>"Spanish and Italian bond yields crept higher on Thursday and
underperformed German debt as markets grew sceptical that banks would use
funds borrowed from the European Central Bank to buy lower-rated government
bonds.</BLOCKQUOTE>
<BLOCKQUOTE>Banks borrowed a huge 489 billion euros from the ECB at an
unprecedented offer of three-year loans on Wednesday, which some had expected
to be reinvested in Spanish and Italian debt and help ease borrowing
costs.</BLOCKQUOTE>
<BLOCKQUOTE>But, those looking for an immediate boost to Italy and Spain were
likely to be disappointed. Traders said the preference was to reinvest some of
the funds into safe-haven paper rather than pick up the higher yields on offer
from some of Europe’s more troubled states.</BLOCKQUOTE>
<BLOCKQUOTE>"What happened yesterday is not a silver bullet to the crisis… but
it is too soon to see the impact yet," said Niels From, strategist at Nordea
in Copenhagen." ("EURO GOVT-Spain, Italy yields rise; hope of ECB relief
wanes", Reuters)</BLOCKQUOTE><FONT size=2>Unbelievably, the benchmark Italian
10-year BTP rose above the 7 percent mark again on Friday morning signalling
renewed stress in the bond market. So while Draghi’s program may have breathed
new life into a few teetering banks, it has failed miserably of all its main
objectives.<BR>So why has Draghi handled the crisis the way he has? Why did he
sit on his hands for so long while interbank lending slowed, overnight deposits
climbed to new records, sovereign bond yields skyrocketed, and all the gauges of
market stress got so much worse?<BR>The obvious answer to this question is that
Draghi’s been using the crisis to pursue his own agenda. He wants to push
through his so called "fiscal compact" that enshrines harsh budget discipline
and labor-battering austerity measures into law so that national budgets will
come under the control of financial elites (aka–ECB-designated "technocrats")
Naturally, nations aren’t going to surrender that kind of authority without a
fight, so Draghi let the crisis get out-of-hand so there would be less
resistance. Here’s how economist Dean Baker sums it up:<BR></FONT>
<BLOCKQUOTE>"The people who gave us the eurozone crisis are working around the
clock to redefine it in order to profit politically. Their editorials – run as
news stories in media outlets everywhere – claim that the euro crisis is a
story of profligate governments being reined in by the bond market. This is
what is known in economics as a "lie".</BLOCKQUOTE>
<BLOCKQUOTE>The eurozone crisis is most definitely not a story of countries
with out of control spending getting their comeuppance in the bond market…It
is a story of countries victimized by the mismanagement of the ECB….People
should recognize this process for what it is: class war. The wealthy are using
their control of the ECB to dismantle welfare state protections that enjoy
enormous public support".</BLOCKQUOTE><FONT size=2>Draghi’s real goal is to
implement the labor reforms and "adjustments" that big finance demands. He’s
already succeeded in deposing two democratically elected leaders in Greece and
Italy and replacing them with bank-friendly stooges that will carry out his
diktats. Now, he’s on to bigger things, like slashing the social safety net,
crushing the unions, and reducing the eurozone to third world
poverty.<BR><B><I>MIKE WHITNEY</B> lives in Washington state. He is a
contributor to </FONT><U><FONT color=#0000ff size=2><FONT color=#0000ff
size=2>Hopeless: Barack Obama and the Politics of
Illusion</U></FONT></FONT><FONT size=2>, forthcoming from AK Press. He can be
reached at </FONT><U><FONT color=#0000ff size=2><FONT color=#0000ff size=2><A
href="mailto:fergiewhitney@msn.com">fergiewhitney@msn.com</A><BR></I></U></FONT></FONT><FONT
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