Why is the answer to all economic problems always “privatize and deregulate”? All seem to agree that selling off Greece’s public assets to private investors is the way to go, yet it is private investors who sold Greece the financial instruments that are now imploding everywhere. The deregulated financial environment of Wall Street and financial industries everywhere, with their highly leveraged, arguably fraudulent financial machinations, always remain behind the curtain (think Orange County’s default and their 2 billion-dollar complex derivatives purchase from Merrill Lynch). Most Greeks may believe that “. . . the crisis lies much closer to home,” but most have also cited widespread tax evasion as the problem, not a bloated public sector. In any case, most economists agree that deregulation was a major cause of the current financial crisis, including Alan Greenspan, who publicly recanted his position after the meltdown. Greece was a victim of this crisis of radical neo-liberal economic ideology, not a cause. And it should also be pointed out that the government in charge in Greece during the run-up of its debt was conservative.

Attempting to blame the financial crisis on debtors and debtor nations like Greece is a complete mischaracterization of what has taken place. The problem, ultimately, as people are increasingly coming to discover with all the literature out there about it, is the securitization process itself, and a deregulated financial industry. How about some mention of the derivatives market as relates to Greece debt, and the way CDOs were constructed so as to invite default? Or a piece about the ratings agencies, and how they were financially incentivized to rate garbage triple A? It isn’t “government,” or “European socialism,” as some would have people believe; it’s financiers who saw it all coming and meant to capitalize on it. They still do, while simultaneously convincing the general public that the very perpetrators of the crisis offer salvation from further abuse. The credit default swaps market, which is still unregulated and going strong, is standing proof of it. If government(s) can be blamed for anything, it’s for allowing Wall Street, neo-cons, and financial lobbyists assure them that government needs to stay out of the way of business and finance. A parallel for the Greek “debt crisis” can be gleaned from Orange County’s experience, a Republican stronghold in California, which declared bankruptcy after being sold complex derivatives that no one could figure out. They ended up suing Merril Lynch and settling (as usual in cases like this) with no admission of guilt on the part of the defendant; and, as usual, the emphasis remains on damage control in managing public opinion more than anything else. Here’s an excerpt from an article that recounts the specifics:

“In June 2, 1998, Orange County reached a massive $400 million settlement with Merrill Lynch, the firm it held most responsible for steering Citron towards what the county deemed risky and unsuitable securities. Thomas Hayes, who led the countys litigation, said he regarded the settlement as fair while Janice Mittermeier, Orange County CEO in its recovery period, said the resolution assures county taxpayers that those responsible for the losses that caused the countys bankruptcy are being held accountable.
Merrill Lynch maintained as part of the settlement that it had acted properly and professionally in our relationship with Orange County. It cited the costs, distraction and uncertainty of further litigation as the reason it had come to make such an expensive settlement, while assuring its investors that it had already fully reserved against such an outcome.
Together with settlements from more than 30 other securities houses, law firms and accountancy firms that the county held partly responsible for the losses, the money from Merrill Lynch meant that some 200 municipal and governmental agencies could be finally made good. In February 2000, officers appointed by the courts paid out around $864 million to various government entities that had suffered from the collapse. Five years on from the bankruptcy, it was a big day for the smaller creditors. But on the same day, Orange County supervisor Jim Silva reminded local reporters that the county itself was still paying off some $1.2 billion of the recovery bonds issued in 1995 and 1996 and would be for several decades, unless it was able to speed up repayments.”

These CDOs were odd, “reverse amortization” products (this was before subprime, actually), designed to increase in value as interest rates went down—as they had been at the time. Well, the Fed changed course and interest rates began to climb. That’s when they failed, and being backed by U.S, treasuries, it broke the county, in much the same way that Greece is being broken right now.

Ten or so years later, Merrill would be acquired by B of A (off-loaded onto, surreptitiously, is more like it), when its Countrywide assets started to tank.

**Note that all of the above is pre-2000, before the dotcom bubble burst; before the Long-Term Capital hedge fund bailout (another milestone in Fed—and ultimately taxpayer—bailout precedent); before the derivatives market really took off with synthetic CDOs and subprime mortgages. Also note that nothing has changed, and that health care and student loans are on the securitization menu, along with U.S. and European democracies.

So, how is it that some “expert” economists are still calling for more of the same? British financial leaders are introducing firewalls between commercial and investment banking (Glass-Steagall, in the U.S.), and would surely like to see that be the international standard. This should be the focus of all sovereign debt problems, rather than “reining in the excesses of profligate social democracies around the world.”