9 February 2015 — The Wolf Report: Nonconfidential analysis for the anti-investor
1. Road Trip
Fast Yani played a couple of warm-up games with Britain’s Chancellor of the Exchequer George Osborne and France’s FM, Michel Sapin before moving on to Frankfurt to take on Snake Draghi, head of the European Central Bank, and Germany’s FM, Wolfgang “Rollerblade” Schäuble.
Tables were reserved, menus decided, bets were down, deals off. “Send in the clown,” said Snake.
“Fresh meat,” was all Rollerblade would admit.
2. Kill Shot
GameBoy didn’t make out too well in Deutschland. Snake and Rollerblade ran the table on him, sending him back the way, and the way, he came– empty handed and pocket empty. Snake put an exclamation point of the victory by decertifying Greece’s sovereign debt as acceptable collateral for those banks seeking to secure loans from the ECB system. “Fresh meat,” as Rollerblade said.
GameBoy had declared that he wanted to put an end to the charade of extend and pretend. Snake, as head of the ECB, is an accommodating sort, and so he gave GameBoy what he had said he wanted.
Greece’s sovereign debt, Snake declared, would no longer be accepted as collateral. No collateral, no loans.
The financial markets reacted, of course, but markets are inherently inefficient, slovenly, and shallow. They are unable to comprehend the predicament they are in– not until they are in it–but precisely because they are in it.
The other shoe had been dropped. If Greece’s sovereign debt was not acceptable collateral, then the secondary market for the debt was done, gone, finished. Dead meat. If Greece’s sovereign debt was not acceptable collateral than the existing loans backed by that debt could not be refinanced. If the existing loans could not be refinanced, then their value could not be realized, and had discounted value only in their prospects for rapid liquidation, in fools finding bigger fools.
If Greece’s sovereign debt was not acceptable as collateral for securing loans from the ECB, then could it count as “core capital” for banks to use as an “offset” for exposure to “risk”? Obviously not.
If Greece’s sovereign debt was not acceptable as collateral for securing loans from the ECB, then could it be exchanged by banks in overnight repo markets to meet liquidity requirements? Obviously not.
If Greece’s sovereign debt was not acceptable as collateral for securing loans from the ECB, then what does that mean for the Greek sovereign debt held by…….the various governments and institutions of the European Union?
Who are the major holders of Greece’s sovereign debt? The previous private holders of the debt had all been, more or less, bought out, hair-cutted, but mostly paid-off by the second bailout effort concluded in 2012.
Of the “new” “restructured” debt, the troika held approximately €248 billion…with Germany holding approximately €60 billion of that.
After the 2010 negotiations, but before the 2012 agreements, Greece’s debt obligations were estimated at €310 billion and 162 percent of GDP.
In 2014, after two years of servicing the debt, the amount outstanding was €317 billion and 174 percent of GDP.
Snake drew a bead on GameBoy and fired. Bulls-eye.
“Scheisse! Ich bin getroffen!” said Wolfgang biting the bullet that had lodged in his mouth.
Word: where ever values are exchanged, force has already been; where ever exchange– circulation and recirculation, finance and refinance– breaks down, force is just around the corner.
3. Being There
Somebody told GameBoy that 90 percent of everything was just showing up in the first place, and he believed it. A mistake. Just showing up counts if you’ve already got something in hand– a bird, a firearm, a credit card, etc. Yanis had nothing… or rather nothing but proposals. He proposed debt-swaps– swapping the existing obligations for “new” obligations that paid in proportion with the growth in Greece’s GDP.
Snake laughed out loud. “Do I look like I just fell off a truck loaded with zucchini?” he asked. “We did that two years ago when we took over the debt from the private investors, from the commercial banks, from the hedge funds. We provided them with “detached” GDP linked securities to ease the razor-burn of the hair-cut. How do you think that’s worked out for them? Good?”
GameBoy had a plan B. He proposed “perpetuity bonds;” bonds without a fixed date of maturity that paid interest forever, or until redeemed at face value by the issuer.
“Who do you think you are?” snorted Rollerblade, spitting teeth. “Great Britain? You want us to accept debt that doesn’t rollover because you are unable to issue debt that can rollover? This isn’t 1914, and we don’t have 100 years to wait for redemption.”
4. The Numbers
Greece’s economy has contracted by approximately 24 percent since 2009. The average annual rate of growth for the last 5 years has been a negative 4.4 percent. According to the World Trade Organization, in 2013 Greece merchandise exports measured €36.6 million, 3 percent below the 2005 level.
Imports in 2013 measured €62.1 billion, 27 percent below the 2005 mark. The collapse in Greece has been determined not by the “financialization” of assets; not in the accumulation of “fictitious capital” but in the inability of the Greek bourgeoisie to exploit the labor-power of workers in Greece intensely enough to finance the capital flows so essential to Greek capitalism’s own margins of profit.
The attempt to remedy the “debt problem” within the framework of capitalism means that every attempt succeeds or fails on the ability to amplify the impoverishment of the population; on driving wages down; on dismantling health-care, education, public transport. There is no solution that “preserves,” or complies with, debt obligations that will not reinforce the liquidation of assets, both accumulated and living. There is no program of “growth,” of “improved welfare” that can exist without repudiating, first and foremost, these debt obligation.
5. The Game, boy
Yanis, once “economist-in-residence” at Valve, a company that develops and distributes video games calls himself a “decent second-rate economist.” He forgot to add he tends toward redundancy. He also doesn’t have a clue as to the stakes are in what he thinks is a game.
First, it’s no game. Real people, real classes are engaged in a struggle. Secondly, sooner rather than later push comes to shove. Push always comes to shove, and that means this all comes down to the…..military.
Greece’s military has benefited mightily from the assumption of debt used to finance the purchase of defective submarines, operable fighter jets, and armored vehicles whose functionality and efficiency in preserving… well, in preserving the Greek military, awaits its live-fire test.
GameBoy says he’s “fighting the good fight,” but neither he nor his Syriza colleagues are capable of fighting period. They have stitched themselves up into the trick back of “order,” of private property, of capitalism.
The single greatest challenge facing the Greek working class is demanding the immediate, unconditional default by the government on the debt. After that, the greatest challenge will be breaking the discipline of the military by winning the ranks to its, the workers discipline; to its, theworkers organizations.
February 9, 2015