“My father made him an offer he couldn’t refuse. Luca
Brasi held a gun to his head and my father assured him that either his
brains, or his signature, would be on the contract.”
— The Godfather (1972)
In the modern global banking system, all banks need a credit line
with the central bank in order to be part of the payments system.
Choking off that credit line was a form of blackmail the Greek
government couldn’t refuse.
Former Greek finance minister Yanis Varoufakis is now being charged with treason
for exploring the possibility of an alternative payment system in the
event of a Greek exit from the euro. The irony of it all was underscored by Raúl Ilargi Meijer, who opined in a July 27th blog:
The fact that these things were taken into consideration
doesn’t mean Syriza was planning a coup . . . . If you want a coup, look
instead at the Troika having wrestled control over Greek domestic
finances. That’s a coup if you ever saw one.
Let’s have an independent commission look into how on earth it is
possible that a cabal of unelected movers and shakers gets full control
over the entire financial structure of a democratically elected eurozone
member government. By all means, let’s see the legal arguments for
this. (Emphasis added - SON)
So how was that coup pulled off? The answer seems to be
through extortion. The European Central Bank threatened to turn off the
liquidity that all banks – even solvent ones – need to maintain their
day-to-day accounting balances. That threat was made good in the run-up
to the Greek referendum, when the ECB did turn off the liquidity tap and
Greek banks had to close their doors. Businesses were left without
supplies and pensioners without food. How was that apparently criminal
act justified? Here is the rather tortured reasoning of ECB President Mario Draghi at a press conference on July 16:
There is an article in the [Maastricht] Treaty that says
that basically the ECB has the responsibility to promote the smooth
functioning of the payment system. But this has to do with . . . the
distribution of notes, coins. So not with the provision of liquidity,
which actually is regulated by a different provision, in Article 18.1 in
the ECB Statute: “In order to achieve the objectives of the ESCB
[European System of Central Banks], the ECB and the national central
banks may conduct credit operations with credit institutions and other
market participants, with lending based on adequate collateral.” This is
the Treaty provision. But our operations were not monetary policy
operations, but ELA [Emergency Liquidity Assistance] operations, and so
they are regulated by a separate agreement, which makes explicit
reference to the necessity to have sufficient collateral. So, all in
all, liquidity provision has never been unconditional and unlimited. [Emphasis added.]
In a July 23rd post on Naked Capitalism,
Nathan Tankus calls this “a truly shocking statement.” Why? Because all
banks rely on their central banks to settle payments with other banks.
“If the smooth functioning of the payments system is defined as the
ability of depository institutions to clear payments,” says Tankus, “the
central bank must ensure that settlement balances are available at some price.”
How the Payments System Works
The role of the central bank in the payments system is explained by the Bank for International Settlements like this:
One of the principal functions of central banks is to be
the guardian of public confidence in money, and this confidence depends
crucially on the ability of economic agents to transmit money and
financial instruments smoothly and securely through payment and
settlement systems. . . . Central banks provide a safe settlement
asset and in most cases they operate systems which allow for the
transfer of that settlement asset.
Internationally before 1971, this “settlement asset” was gold. Later,
it became electronic “settlement balances” or “reserves” maintained at
the central bank. Today, when money travels by check from Bank A to Bank
B, the central bank settles the transfer simply by adjusting the banks’
respective reserve balances, subtracting from one and adding to the
Checks continue to fly back and forth all day. If a bank’s reserve
account comes up short at the end of the day, the central bank treats it
as an automatic overdraft in the bank’s reserve account, effectively
lending the bank the money in the form of electronic “liquidity” until
the overdraft can be cleared. The bank can cure the deficit by
attracting new deposits or by borrowing from another bank with excess
reserves; and if the whole system is short of reserves, the central bank
creates more to maintain the liquidity of the system.
The most dramatic exercise of this liquidity function was seen after
the banking crisis of 2008, when credit was frozen and banks had largely
stopped lending to each other. The US Federal Reserve then stepped in
and advanced over $16 trillion to financial institutions through the TAF
(Term Asset Facility), the TALF (Term Asset-backed Securities Loan
Facility), and similar facilities, at near-zero interest. Toxic
unmarketable assets were converted into “good collateral” so the banks
could remain solvent and keep their doors open.
Liquidity as a Tool of Coercion
That is how the Fed sees its role, but the ECB evidently has other
ideas about this liquidity tool. Whether a country’s banks are allowed
to “access monetary policy operations” is seen by the ECB not as
mandatory but as discretionary with the central bank. And as a condition
of that access, if a country’s bonds are “below investment grade,” the country must be under an IMF program —
meaning it must subject itself to forced austerity measures. According
to ECB Vice President Constâncio at the same press conference:
When a country has a rating which is below the
investment grade which is the minimum, then to access monetary policy
operations, it has to have a waiver. And the waiver is granted if there
are two conditions. The first condition is that the country must be under a programme with the EU and IMF; and second, we have to assess that there is credible compliance with such a programme. [Emphasis added]
Liquidity is provided only on “adequate collateral” — usually
government bonds. But whether the bonds are “adequate” is not determined
by their market price. Rather, political concessions are demanded. The
government must sell off public assets, slash public services, lay off
public workers, and subject its fiscal policies to oversight by
unelected bureaucrats who can dictate every line item in the national budget.
Europe now has a system where liquidity and insolvency
problems can occur and can be deliberately generated (at least in part)
by the central bank. Then the Troika can force that country into an “IMF
program” if it wants to continue having a functioning banking system.
Alternatively, the central bank can choose to simply “suspend
convertibility” to the unit of account [i.e. cut off the supply of
Euros] and force the write down of deposits [haircuts and bail-ins]
until the banks are solvent again.
Pushed to the Cliff by the Financial Mafia
Were liquidity and insolvency problems intentionally generated in Greece’s case, as Tankus suggests? Let’s review.
First there was the derivatives scheme sold to Greece by Goldman Sachs in 2001, which nearly doubled the nation’s debt by 2005.
Then there was the bank-induced credit crisis of 2008, when the ECB coerced Greece to bail out its insolvent private banks, throwing the country itself into bankruptcy.
This was followed in late 2009 by the intentional overstatement of Greece’s debt by a Eurostat agent who was later tried criminally for it, triggering the first bailout and accompanying austerity measures.
The Greek prime minister was later replaced with an unelected
technocrat, former governor of the Bank of Greece and later vice
president of the ECB, who refused a debt restructuring and instead oversaw a second massive bailout and further austerity measures. An estimated 90% of the bailout money went right back into the coffers of the banks.
In December 2014, Goldman Sachs warned
the Greek Parliament that central bank liquidity could be cut off if
the Syriza Party were elected. When it was elected in January, the ECB
made good on the threat, cutting bank liquidity to a trickle.
When Prime Minister Tsipras called a public referendum in July at
which the voters rejected the brutal austerity being imposed on them,
the ECB shuttered the banks.
The Greek government was thus broken Mafia-style at the knees, until
it was forced to abandon its national sovereignty and watch its public
treasures sold off piece by piece. Suspicious minds might infer that
this was a calculated plot designed from the beginning to throw Greece’s
prized assets onto the auction block, a hostile takeover and asset
stripping for the benefit of those well-heeled entities in a position to
purchase them, including the very banks, hedge funds and speculators
instrumental in driving up Greek debt and destroying the economy.
No Sovereignty Without Control Over Currency and Credit
In the taped conference call
for which Yanis Varoufakis is currently facing treason charges, he
exposed the trap that eurozone countries are now in. It seems there is
virtually no legal way to break free of the euro and the domination of
the troika. The government has no access to the critical data files of
its own banks, which are controlled by the ECB.
Varoufakis said this should alarm every EU government. As Canadian Prime Minister William Lyon Mackenzie King warned in 1935:
Once a nation parts with the control of its currency and
credit, it matters not who makes the nation’s laws. Usury, once in
control, will wreck any nation.
For a nation to regain control of its currency and credit, it needs a
central bank with a mandate to serve the interests of the nation.
Banking should be a public utility, serving the economy and the people.
Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at EllenBrown.com. Listen to “It’s Our Money with Ellen Brown” on PRN.FM.
Source: The Web of Debt Blog