Defrauding Europe

We assume our bosses pretty much run the world, but it is bracing to see how the 25 member states of the European Union sometimes have a slightly different view—and gingerly act upon it.

Two incidents attracting attention outside the U.S. might eventually penetrate consciousness over this way: one is the hit pretty obviously performed by the Israeli secret service, Mossad, on an alleged Hamas arms dealer in a Dubai hotel.

Official assassination doesn’t seem to bother the world’s powerful as a foreign policy tool, especially when performed by Israel, and Americans can hardly object in principle since George W. Bush bragged that we do it too in front of a joint session of Congress—to stormy applause.

But the Mossad agents apparently used a slew of phony EU passports whose numbers correspond to real citizens of Ireland, France and the U.K. Breaching the sanctity of Official Documents, to the member states, is a far more serious matter than some silly old state-sponsored murder. Given the interests involved, we can safely assume the whole thing will blow over shortly, but it is a sign of the exasperation some in Europe feel with constantly being treated like Israel’s pet hamsters with the Americans looking on benignly.

An incident less easily brushed under the diplomatic rug is the role of Goldman Sachs in hiding Greece’s debt by selling it ‘complicated financial instruments’ (how familiar does THAT sound?) for which GS collected a tidy $300 million in fees. While Goldman hid this maneuver, other investors not privy to the scammish details were investing in Greek government debt that might turn out to be worth a lot less than they thought.

To prevent Greece, which is part of the Euro common currency zone, from becoming the target of speculators and driven into financial collapse, stronger partners like France and Germany must now pony up cash. It’s the equivalent of what we had to do as taxpayers in 2008 with one major difference: they are foreign countries.

A Bloomberg story headlined the Goldman/Greece operation this way: ‘Goldman Sachs, Greece Didn’t Disclose Swap, Investors Fooled’.

I think ‘fooling’ investors is usually known as ‘fraud’. Simon Johnson at The Baseline Scenario said of the latest scandal:

‘If the Federal Reserve were an effective supervisor, it would have the political will sufficient to determine that Goldman Sachs has not been acting in accordance with its banking license. But any meaningful action from this direction seems unlikely’.

That is putting it mildly. On the other hand, French and German regulators and prosecutors don’t have to milk Wall Street for campaign contributions, which undoubtedly gives them quite a different perspective on seeing their countries ripped off by these sleazemeisters.

One possible bit of fallout is the impact on the race for head of the European Central Bank (ECB), their equivalent of our Fed. Mario Draghi of Italy was considered a top contender, but turns out he was a senior manager at—guess where?—Goldman Sachs during the period in which the phony Greek debt salad was being tossed in the GS banquet kitchen.

Another expert predicts ‘sovereign’ defaults, meaning governments going belly up, will proliferate. As a lay reader of economic news, this strikes me as eerily similar to the early rumblings about problems in the mortgage finance sector, a year or so before the kaboom associated with water tumbling over Wall Street’s rapidly cracking dams.

At that time, too, a couple of Bear Stearns mortgage funds were reported to be in trouble, and the Great and Mighty assembled to work things out and stem the damage. We now know that it was impossible, but the early accounts were quite sunny and insouciant.

Now skim the headlines about the Greek debt debacle for reassuring intonings from European bankers about how everything is in order or soon will be. Well, we shall see, but as our own government is increasingly captured by the billionaires and their corporations, it could get interesting if foreign countries decide that enough is enough.