Wall Street WARZONE
Niall Ferguson Warns “Europe’s Original Sin” — Ignoring Massive, Rising Debt for Too Long — Will Trigger “Big-Fat Greek” Collapse … Here in America!
by Paul B Farrell, JD, PhD
| Discuss | | 5/13/2010

The Journal calls it “Europe’s Original Sin,” a Faustian tale about the EU selling its soul to the Devil, a coverup about how Europe’s “National Leaders Ignored Greece’s Soaring Debt for Years.” But wait, no, Europe did not get the idea of massive deficit-financing from America, looks like they thought it up all by themselves, with no prompting:

Europeans are blaming financial transactions arranged by Wall Street for bringing Greece to the brink of needing a bailout. But a close look at the country’s finances over the nearly 10 years since it adopted the euro shows not only that Greece was the principal author of its debt problems, but also that fellow European governments repeatedly turned a blind eye to its flouting of rules. Though the European Commission and the U.S. Federal Reserve are examining a controversial 2001 swap arranged with Goldman Sachs, Greece’s own budget moves, in clear breach of European Union rules, dwarfed the effect of such deals. … years of overspending, leaving bond investors worried the country can’t pay back its debts—weren’t supposed to happen in the euro zone. 

Well, it did happen, as if willed by Greek Gods on Mt. Olympus. So America and Goldman are off the hook: The “controversial derivative transactions Greece used to help mask the size of its debt and deficit numbers” were small compared to Greece’s failure, for example, “to book €1.6 billion ($2.2 billion) of military expenses in 2001—10 times what was saved with the swap.” 

Not so fast, says Niall Ferguson, a leading financial historian whose works include the recent “Ascent of Money: A Financial History of the World,” “The Cash Nexus: Money and Power in the Modern World,” “Colossus: The Rise and Fall of The American Empire.” Writing in the Financial Times, Ferguson warns that a “Greek crisis is coming to America,” like America started the trend of going deep into debt to finance domestic economic expansion, then the idea gets picked up all over European nations, and now it’s going to backfire on America: (More)

Global Shadow Banking: Why Buffett & Munger see the Secretive $670 Trillion Derivatives System as Dangerous “Financial Weapons of Mass Destruction”
by Paul B Farrell, JD, PhD
| Discuss | | 4/7/2010

“Charlie and I believe Berkshire should be a fortress of financial strength” wrote Warren Buffett. That was five years before the subprime-credit meltdown. “We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. I

n our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” That warning was in Buffett’s 2002 letter to Berkshire shareholders. He saw the future meltdown years before Greenspan, Bernanke, Paulson and many other political ideologues. They were in denial, ignoring the “mega-catastrophe” triggered by derivatives, the world’s new “financial weapon of mass destruction:” The Iraq war build-up was at a fever-pitch back then. The imagery of WMDs and a mushroom cloud fresh in his mind. (More)