Thursday, June 30, 2011

It Almost Always Comes Back to Greed

Greece’s debts are not terribly big; for example, French and German banks (its biggest lenders) hold about $90 billion in Greek debt. That’s less than the US spent on the war in Afghanistan last year. For a small country that’s a lot of money, but for the global financial system, it’s peanuts.

So why can’t European banks restructure the debt and give Greece more time to pay off its loans? Answer: healthy banks could do this, but European banks are not healthy. They lack the capital to cover the lost income from Greece’s regular debt payments. European banks are structured the same way US banks are: loans have been used as capital to support making further loans. In accounting terms, banks have treated their loans as tangible assets instead of the intangible assets that they truly are.

That’s common practice in the worldwide banking industry, and most of the negotiation over new reform rules for banks is about what banks should consider “capital” and how much capital banks should have on their books vs. how much money they can lend out. Regulators want banks to stop considering loans as capital, and they think banks should hold more cash as capital. The strictest regulators want banks to hold 14 percent of all their assets in cash (capital) to offset losses on loans. The banks are holding out for 7 percent or less, and are arguing about what should be considered “capital.”

Why are the banks fighting against a regulation that would help to stabilize the banking industry and avoid a situation where the collapse of a small country’s economy could threaten the health of their entire industry? Answer:

The more loans a bank can make, the more income it generates. Requiring banks to sit on piles of cash and stop using loans as capital would severely cut down on the amount of loans banks can make, thereby reducing the banks’ income. Huge bank profits mean huge bonuses for bankers and big profits for shareholders. Financial industry stocks have driven much of the growth on Wall Street in the past 15 years.

~ from Why Does Greece Matter? by Maria Tomchick ~
Have you noticed that, regardless of the nation or region, almost all economic problems in the world wind their way back to banks and/or Wall Street? As Tomchick points out, the chief culprit is one of the seven deadly sins: G-R-E-E-D.

I want to know why the leaders of Christianity -- particularly the fundamentalists -- focus so much of their attention on issues like marriage and abortion, yet they are remarkably silent when it comes to the amount of greed rampant in the world today!

Why doesn't Fred Phelps and the Westboro Baptist Church picket Bank of America or Goldman Sachs as a way of saying God is displeased with the way they conduct business?

Why doesn't the loony Terry Jones (the Koran burner) threaten to burn the collective written works of Milton Friedman because they represent a "bible" that goes against the Kingdom of God?

Why hasn't Pat Robertson declared that, when a bank goes under or a major corporation sees its stock prices tumble, it is because God is punishing the CEO and shareholders for leading immoral lives?

I'm just asking.

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