OPINION

On casino money, Greece as a middle class country, recapitalization of banks

Cardiac arrest is a life-and-death matter on the minute scale. Urinary tract closure is life threatening within hours. Freezing up interbank lending chokes the economy within weeks. Immediate, laser-targeted and competently executed action is called for in each case.

So far, on the financial front, the doctors? responses have not been for the long haul. And while pumping uncovered funny money into the patient may keep him alive, the market can?t be fooled endlessly. Confidence among the players remains key. The real trading partners may stay in business by working around banks. Their traditional business facilitators may overcome their freezing up by installing a firewall between their real economy services and the back office with its fiat money casinos.

The OECD has already called for a breakup of the big banks and in the run-up to the next G20 meeting; the World Bank, IMF and EU have also sounded the tocsin. Yet, gesticulations still dominate the political arena, with little in the way of credible and nationally if not globally supportable helpful solutions. Particularly, the hugely blown up balloon of uncovered fiat money, which is still not universally recognized as the core problem, it really is. Still, decision-makers looking for road-holding solutions may want to take a look at the idea of complementary local real value currencies.

To be sure, on the debate about controlled enhanced public spending (Keynes) vs liberating market forces (Hayek), the jury is still out. Maybe both have it at least partially wrong (collapse of the Soviet system / Wall Street’s contributions to the current mess). But Bernard Lietaer, the former Belgian central banker, may indeed be up to something with his contrarians proposal to the fashionable budget cuts. He seeks to get the productive forces, particularly the unemployed youth, back to work — in both California and Greece — by reintroducing a local-content-oriented complementary currency. Utah and other states have already begun to go up that road. Others may follow, if not with tobacco leaves then perhaps with other real value currencies. Significantly, current EU treaties and directives do not stand in their way — only not invented here economic know-it-all do.

Since 1934, Switzerland’s complementary WIR franc system has provided such a uniquely effective anti-cyclical and anti-depression tool. Some credit this $2.5bn system involving one-quarter of Swiss enterprises with having safeguarded the Swiss economy from downturns, which affected all its major trading partners. It is designed to keep Switzerland?s productive forces employed, tourist infrastructures in use and machinery humming — even and particularly when the chips are down. And it is seen to avail itself for adoption and application in the Greek as well as other cases.

Anton Kellner

Switzerland

Greece has always been a middle class country? What nonsense!

I’m 56 and my mother was born in Greece in 1926. In her time and right up until the 50s Greece was predominantly agricultural and peasant. It?s only since the 50s and the subsequent ‘illusion’ of prosperity that Greeks voted with their feet to join the ‘illusion’ of the ‘wealthy European middle classes’ and become teachers, doctors, lawyers etc., to be paid government salaries that could not be afforded.

Before this ‘time of illusion’ Greece at least knew it was poor, agricultural and small-town, and lived with that when Greeks weren’t fighting amongst themselves about whether to follow the communist or their capitalist illusion out of poverty.

When a country has no iron, no coal, no oil (or very little) and no gas, it is perforce definitely third or second world and definitely not middle class, except in its fantasies.

Philip Andrews

UK

Recapitalizing Greek banks

Greek banks have aggregated capital and reserves of 45-50 billion euros. In total, they hold about 80 billion euros of Greek sovereign debt in their portfolios. If those assets need to be written down by half, the capital and reserves of Greek banks will be wiped out.

When banks have wiped out their capital and reserves, the present shareholders have lost everything. That may be hard for them to accept, but such is capitalism.

After having written down half of their Greek sovereign debt, Greek banks should be banks in reasonably good condition but without capital and reserves. They would need to replenish the 45-50 billion euros of capital and reserves which they had before the writedowns.

Whoever provides those new 45-50 billion euros will be the owner of the Greek banking system. Does Greece really want the EFSF to be the owner of the Greek banking system?

Greeks hold deposits in accounts with Greek banks of almost 200 billion euros. If those Greek depositors could be persuaded to swap 50 billion euros of their deposits into new capital and reserves of the «cleaned-out» Greek banking sector, they would be the sole owners of the Greek banking sector. And they would be shareholders of banks that should be in reasonably good shape and, as a result, be able to pay more in dividends than they presently pay in interest on bank deposits.

Should one not be able to persuade Greek depositors to do this, it would be within the realm of Greek legislation to force them to do it.

Klaus Kastner

Austria