Order under articles 4 and 5

WHEREAS there is a substantial lack of liquidity and a significant risk in the outflow of deposits which are likely to endanger the survival of the credit institutions with a chain reaction that could lead to the instability of the financial system and to destabilising consequences on the entire economy and the society of the country.

 AND WHEREAS under the circumstances a state of emergency is created, to safeguard public order and public security and for overriding reasons of public interest,  12(I) of 2013The Minister of Finance, in exercising the powers conferred by articles 4 and 5 of The Enforcement of Restrictive Measures on Transactions in a Situation of Emergency Law of 2013, following a recommendation of the Governor of the Central Bank, issues the following Order:  Short title.1. The present Directive shall be referred to as The Enforcement of Restrictive Measures on Transactions in a Situation of Emergency First Order of 2013.  Interpretation2. (1)  In the present Order unless the context shall otherwise prescribe:   «Committee» means the Committee that is introduced under article 9 of the Law.

 «Law» means The Enforcement of Restrictive Measures on Transactions in a Situation of Emergency Law of 2013.

«Credit or debit or prepaid card» means credit or debit card or prepaid card issued by credit institutions.

(2) Terms not defined in this order shall have the meaning ascribed to them by the Law.  Imposition of restrictive measures.

3. By virtue of articles 4 and 5 of the Law, and following the recommendation and agreement of the Governor, the following restrictive measures are imposed:

(1)    A maximum amount of cash withdrawal is imposed, which shall not exceed the daily limit of €300 per person per credit institution, or its equivalent in foreign currency. All cash withdrawals (through debit cards, prepaid cards, and from the bank’s tellers and using credit cards against balances in current accounts) are computed per account holder for all his accounts in each credit institution.

Provided that any amount of the daily cash withdrawal limit, which has not been withdrawn during the day for which the cash withdrawal limit applies, can be withdrawn at any time afterwards.

(2)  The cashing of cheques is prohibited.

(3)  Any cashless payments or transfers of funds outside the Republic or to accounts held with other credit institutions is prohibited, except that:

(i)             Payments for transactions that fall within the ordinary business activities of customers upon presentation of supporting documents as follows:

(A)  Payments of up to €5,000 daily per account are not prohibited;

(B) Payments of amounts from €5,001 to €200,000 are subject to the approval of the Committee. A list of applications for payments that fall within this category shall be submitted to the Committee by the credit institution on a daily basis and shall state the amount of each payment, the total amount and the number of payments that fall within this category. The Committee in making a decision, which must be made within 24 hours, shall take into account the available liquidity reserves of the credit institution.

(C) Payments of amounts of €200,001 or more, if the prior approval of the Committee for the specific payment is obtained after an application has been made by the credit institution. The Committee in making a decision shall take into account the available liquidity reserves of the credit institution.

(ii)           The Payment of employee salaries upon presentation of supporting documents.

(iii)          Living expenses up to €5,000 per quarter, as well as the tuition fees of a person that is studying abroad and is a first-degree relative of a person who has his habitual residence in the Republic. Provided that any payment of living expenses is only permitted if documents are submitted to the credit institution evidencing that the recipient of the cashless payment and/or transfer of funds is a first-degree relative of a person who has his habitual residence in the Republic. Provided further that payments of tuition fees may only be made to the relevant educational institution if supporting documents are submitted.

(iv)          Payments and/or transfers of funds by debit or credit or prepaid card, up to €5,000 per month per person per credit institution.

(4)  The termination of fixed term deposits before the maturity date is prohibited, unless the deposit shall be used for the repayment of a loan within the same credit institution.

(5)  On the first maturity of fixed term deposits, an amount equal to the greater of €5,000 and 10% of the total principal amount of the fixed deposit, shall be transferred, at the option of the depositor, to a sight/current account or deposited in a new fixed term deposit of the depositor in the same bank. For the remaining balance, the maturity shall be extended by one month.

(6)  Funds from transferred from fixed term deposits to sight/current accounts will be subject to the restrictive measures applicable to sight/current accounts.

(7)  Exports of euro notes and/or foreign currency notes exceeding €1,000 or its equivalent in foreign currency per natural person per journey abroad is prohibited. The Director of Customs shall implement this measure.

(8) Any financial transaction, payment and/or transfer that was not finalised before this Order came into force shall be subject to the restrictive measures. Provided that any financial transaction, payment, and/or transfer that was not processed before this Order came into force shall be cancelled and must be resubmitted.

(9) Credit institutions are prohibited from executing any cashless transfers that facilitate the circumvention of the restrictive measures.

(10)The restrictive measures apply to all accounts, payments and transfers regardless of the currency denomination.  Exemptions.4.  Exempted from the restrictive measures are:

1. All new funds transferred from abroad to the Republic.
2. Withdrawal of cash from accounts held abroad using credit or debit card or prepaid issued by foreign institutions.
3. The cashing of cheques issued on accounts held with foreign institutions abroad.
4. Withdrawal of cash from account of credit institutions with the Central Bank.
5. The Republic.
6. The Central Bank.
7. Diplomatic missions.
8. Payments that have been approved by the Committee.

Force of this Order

27 March 2013. This Order shall stay in force for a period of seven days from the date on which it is published in the Official Gazette of the Republic.

Michalis Sarris

Minister of Finance

But here’s the thing. Do you care to guess how much J&J lost thanks to that currency movement? Answer: a cool hundred million dollars. Johnson is a pretty large company, but even so. To lose a hundred million bucks? In Venezuela? That sounds a little disturbing, no? A bit like the start of one of those killer-virus horror flick, where the pretty teenager who comes down with a benign little illness ends up dying horribly as some unknown disease takes hold.

Central Planners Bernanke, Draghi & Merkel Hard at Work

Well, that is now the reality of the world economy. The loose money policies at the world’s leading central banks are beginning to broadcast that virus right across the globe. The vector of transmission isn’t just low interest rates. It’s money printing too. It’s the purchase of government bonds so that the long end of the yield curve is as manipulated as the low end.

Indeed, you simply can’t set a bound on how widespread and intensive the destruction of value has been, not merely in the U.S., but across the globe. Take, for example, the Fed’s willingness to purchase toxic real estate assets — using your money to acquire securities which are now shunned by the market. Or take the Bank of England’s efforts to shove easy money at banks making corporate loans. What happened to good old-fashioned faith in markets? The belief that transactions of commercial merit will be struck between a willing buyer and a willing seller … and that any other sort of transaction should be strongly discouraged?

The simple fact is that the world’s major central banks are indulging in a massive proprietary trading scheme placing your money at risk in support of poor quality assets. When I wrote Planet Ponzi, I argued that Wall Street and government between them had created the world’s biggest ever Ponzi scheme. Well, the central banks want to play at that table too — and right now they’re the ones with unlimited money and zero accountability.

In recent months, the Japanese yen has plummeted 30 percent against the euro and some 20 percentagainst the U.S. dollar. Those figures are astounding enough in themselves, but get this: The euro currency probably won’t even exist in a few years’ time. The outcome of the Italian election gave a more than quarter of the vote to a comedian, Beppe Grillo. (He is literally a comedian; I’m not just using the term as a synonym for “Italian politician.”) Grillo wants to exit the euro and default on Italian debt. Other parties shared nearly all the remainder of the vote. The only politician to stand four-square behind Angela Merkel’s austerity ad infinitum plan was Mario Monti, who secured just one tenth of the vote.

Grillo’s plan, as it happens, isn’t dumb. The euro has been killing Italy, and though Italian debts are high, they are, for the most part, funded domestically and the national budget is not far from being in balance. So Grillo’s plan keeps it simple: quit the euro, self-fund the debt, go back to doing what Italian governments have always done. If that sounds nuts, bear in mind that Italy’s economy has been a post-war miracle — growing way faster than the U.S. economy, albeit from a lower base. Italy only really started to fail when it joined the euro: Meaningful growth has been absent ever since. Italy’s competitiveness — never so secure — has been systematically wiped out by its adventure with the euro.

If Italy follows a path that’s anything like the one Grillo has mapped out for it — or if civic unrest grows — or if some European bank found itself obliged to admit to the true value of some whole new pile of nasties on its balance sheet — then the euro is dead; but this is the currency against which the yen is devaluing.

The precise path of these currency wars is impossible to predict, but it’s not hard to predict the final outcome. First, there will be huge losses. Japan has an economy that’s almost twenty times larger than Venezuela’s. If Johnson & Johnson can lose $100 million in Venezuela, just how much more will be lost in the Far East and Europe, not just by that one company but by every other multinational one too?

Spain's civil disorder - A coup d'état in the air? Euro departure?

Secondly, civil unrest. We’ve seen bouts of unrest already surging across the world — from riots in Greece, to the Occupy movement, to the indignados in Spain — but these things are only going to get worse. Suppose, for example, that Italy does successfully quit the euro; what will that say to the Spaniards and Greeks and Portuguese and Irish who are currently suffering its death throes?

And thirdly: inflation. The trouble with currency wars is that they’re too easy to wage. You just have to print money. The mainstream media barely reports the ongoing activity and the Fed is either in denial or lying. It all sounds a little technical and dull. We assume that the people in charge of looking after our money supply are on our side, that they have our interests at heart.

But do they? Again and again, we see that central banks make the error of equating happy financial markets with strong economies — precisely the mistake that was made by central banks ever since the dot-com crash (and, indeed, before.) Here’s the simple truth. Financial markets prefer excessive valuations and excessive liquidity. Sure, they love it if the Fed prints a ton of new money. Obese kids would probably like it if McDonald’s gave away their stuff for free on street corners.

But the interests of Wall Street are not your interests. Global stock markets are making new record highs — on what? What’s so great about the world economy? The truth is that stock markets are up because of Fed-based ‘hopium’: the torrents of cash artificially manipulating prices. Yet whatever goes up must come down and no one at the Fed even pretends to have an exit strategy. The simple fact is that the Fed has created the mother of all asset bubbles, and the popping will be on a scale previously unknown.

Indeed, you only have to look at the personnel in key positions across the globe to understand how deeply Wall Street has penetrated institutions that were meant to be there for us.

Jon Corzine - What happened to MF Global's missing Billions? Who said there is no revolving door between Wall Street and Washington?

Mario Draghi, head of the European Central Bank is an ex-Goldman guy. So is William Dudley President of the New York Fed — who controls the FOMC. So is Mark Carney, soon to be Governor of the Bank of England, currently the Governor of the Bank of Canada as well as the Head of the Financial Stability Board in Switzerland. When you start to add in key politicians with affiliations to the same institution (Mario Monti, Hank Paulson, Robert Rubin, Gary Gensler, Jon Corzine), you start to realize that our entire political system has become heavily conflicted and corrupted. The interests of Wall Street have come to dominate the interests of ordinary citizens.

All Ponzi schemes must come to an end. They always bring disaster when they do — but that’s no reason to close them down, because the collapse only gets bigger the longer you leave them. We are in the end stages of a huge, global Ponzi scheme right now. The losses are rising, the risks are getting greater. And the worst disasters lie ahead.

Bunga, Bunga is back!

The return of the undead

Berlusconi to return to Italian politics. Mario Monti to quit (and return to Goldman Sachs for a annual honorarium of $50,000,000). The Italian long bond to go to 600 basis points over bunds. Investors to notice that Italy is still in the position of having massive debts and a completely stagnant economy. Panic to break out (again).

The bursting of the bubble

London property has been wearing anti-gravity boots for years now. Hey, the market has become so frothy that know-nothing footballers have been turning themselves into property developers (a sell signal if ever there was one.) But those anti-gravity boots are starting to lose their potency. Stand by for a massive fall in London prices. Property elsewhere in the UK will have a sympathy fall too.

Japan to have stable leadership

After too much calamitously indisciplined and indecisive leadership, Shinzo Abe has a real chance to holding onto power for a good stretch. He’s got massive problems to contend with. A structurally weak economy, massive debts and a prickly neighbour to the west. But just possibly, Abe-san is the man for the job. We’re wishing him luck: he’ll need it.

Francois Hollande to become most unpopular French President …

… since the last one. Hollande came to power on the back of anti-austerity promises, as though Sir Taxalot and his good steed Spend-Some-More was going to get France out of trouble. By now, Hollande has started to notice that France is in a fiscal mess, with chronically weak banks and far too much government spending. Will the French public enjoy Hollande’s conversion to the path of fiscal probity? We’re thinking non.

English middle classes to subsist on potatoes

Er, unless porridge is cheaper. As food inflation continues to skyrocket – beef up 75%,  lamb up 55%, fruit up 26% – and real wages continue to stagnate, more and more people will be forced to trade down to the cheapest (and least healthy) foods simply to get by. Oh, and as fuel prices continue to surge, we’re going to see a whole lot more people burning their floorboards to keep warm. But there is good news. The bankers are OK, people! And corporate profits are great! So you don’t need to worry about the FOGOs (Friends Of George Osborne). They’re all going to be fine.

The LIBOR scandal to grow

Three minnows arrested so far in the LIBOR scandal while the whales remain at large. That number’s going to rise faster than the yields on Spanish debt. If we’re lucky, we’ll start to see the stirrings of similar enquiries into the market for US Treasuries market. That market is stitched up tighter than Tony Soprano’s waste management business … and involves less savory individuals.

London Whale a "tempest in a teapot"

More of the same

Ever noticed that central bankers – ivory-tower academics for the most part – have been wrong about virtually everything for thirty years? Ever noticed that the same old advisors (take a bow Larry Summers) are recycled again and again, making the same failed policy prescriptions? Yep, well, 2013 is the year of no change at all. Same faces, same policies, same failures. Our big tip for the next big appointment: J.P. Morgan’s Dimon will smash the Goldman-only rule in Washington politics by leaving Wall Street for public service (that is: looking after his friends on Wall Street at the expense of everyone else.)

‘Triple-dip’ to become phrase of the year

If 2012 was the year of double-dip in the UK, 2013 has every chance of making it a recessionary hat-trick. Of course, the phrase is a con: it suggests that another recession now will be like some kind of temporary setback before the economy’s inevitable resurgence. But we had ten years of growth built on debt. Now we’ve got ten years of stagnation as we pay that debt back down. Triple-dip? How does quintuple-dip sound?

Civil unrest in Spain

Super Mario Draghi saved the world in 2012 (by promising to buy shoddy debt without limit for as long as needed.) We can’t even think what’s wrong with that policy … but here’s our bet: that Spain hits another crunch in 2013. Catalonian unrest grows. Unrest among those 50% of youth unemployed grows. And all of a sudden those – totally understandable – expressions of discontent force a financial, political and economic crisis. How will you escape this time, Mario?

Wanting to be head of the EU......

Merkel to be re-elected with 99% of the vote

Angela Merkel is Ms Reliable in German politics. Unfortunately she’s achieved that position by shirking every major decision in the Euro crisis, as a result of which the continent has racked up massive, unsustainable Ponzi-ish debts aided and abetted by lying bankers and southern European politicians who are either corrupt or incompetent. (Or, Silvio, both.)

Gold to hit new highs

What’s bad for money is good for gold. After a long bout of profit-taking, we expect gold, silver and other commodities to hit new highs. Meantime overvalued tech companies (we’re looking at you, Farcebook) will continue to lose value. And Exchange Traded Funds will increasingly be exposed as the new subprime market. Stand well back if you don’t want to be hurt.

Problem solved

The US fiscal cliff? OK, here’s what’s going to happen. The Democrats will sit down with Republicans. Both sides will call attention to the fact that the US fiscal gap (taking into account the oncoming medical and social security express train) is among the worst in the world. Both sides will set aside party differences and put together a plan which will be based on serious revenue increases and major cutbacks to entitlements. None of these things will be popular, but leaders from both parties will explain the logic truthfully and dispassionately to their electorates. Another US recession avoided. Also, pigs will fly.

Need a compact guide to the crisis?

Fortunately we have one for you: Mitch Feierstein’s Planet Ponzi. If only George Bush and Gordon Brown had had a copy …

If he had only read Planet Ponzi...

Over the coming weeks, we’re going to be hearing a lot about the ‘fiscal cliff’: the threat that some 5% of GDP is going to be ripped out of the economy in a combination of tax hikes and spending cuts. A fiscal slow-down on that scale will almost certainly trigger recession. The CBO thinks so, though their numbers look optimistic to me. (If you cut demand by 5%, more or less overnight, then you shouldn’t expect the economy to grow by more than 1% in the year following.)

The Feds solution to debt: more debt

Because the process of fiscal compromise acts itself out on the political stage – all big personalities and high drama – the media loves to report it. Loves to imply that vast questions are at stake, that political careers will stand or fall by the outcome.

But they’re not. Not really. This so-called ‘cliff’ is really just the first in a series of steps. The US budget is arguably the most distorted in the Western world. Greece and Japan may have higher debts, Italy and Portugal may have worse growth prospects – but for sheer budgetary insanity, the US is probably the world leader, combining huge current deficits with vast unfunded promises to retirees, and welfare entitlement program recipients. You don’t need to take my word for this. The IMF states, ‘under our baseline scenario, a full elimination of the fiscal and generational imbalances would require all taxes to go up and all transfers to be cut immediately and permanently by 35 percent. A delay in the adjustment makes it more costly.’

The political ructions of the next few weeks will simply constitute the first scenes in a drama that will run for the next ten or fifteen years. And what’s more, this is a play where we already know the ending. Taxes will have to go up. Spending will have to come down. No other outcome is available: just ask the Greeks.

And meantime, there is a monetary time-bomb charged and ticking. A bomb which is being constantly primed with further explosive, further destructive force. Remember that the economic catastrophe of 2008 was created by loose monetary policy, the indisciplined expansion of credit and a market where increasingly shoddy securities were sold as investment grade assets. You might think that a logical reaction would be the steady tightening of policy and encouraging a climate of credit discipline.

Alas, however, such logic has no place at the Fed. Interest rates are on the floor, and have been for four years now. Because four years of loose money isn’t enough for the ivory-tower academics in charge of monetary policy, the Fed has explicitly committed to keep rates low indefinitely.

Loose money in the past, loose money guaranteed into the future … but that’s still not enough. The Fed has enlarged its balance sheet by $2 trillion since the crisis began to unfold. But that doesn’t even say it. The unelected officials at the Fed handed out an extraordinary $16 trillion in secret loans to bail out banks and businesses in the 2008-10 period. Those loans were not known to, or authorized by, Congress and many of the recipients were firms owned and headquarter abroad. Sen. Bernie Sanders, who has much to call attention to these issues, comments, ‘No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president.’ Well, duh! It’s frankly extraordinary that there should be any question about this.

As Sanders also points out, the actual operation of the bailouts was largely outsourced in large part to investment banking firms on Wall Street who benefitted directly from the bailout. According to the Government Accountability Office, some two-thirds of such outsourcing contracts were awarded on a no-bid basis, an extraordinary failure. And meantime in a ‘money-laundering‘ style operation, the Fed is acquiring $40 billion of low-quality mortgage backed securities – in many cases from the firms that created and missold them – thereby cleaning corrupt balance sheets at the risk of the US taxpayer.

The problems created by this unconstitutional misconduct go far beyond the mere trillions of dollars involved. The US Treasury market is being currently manipulated on a heroic scale. At times we’ve seen the Fed buying as much as 70% of US government bond issuance. Worse still, it’s effectively told the market that it intends to continue supporting the market as much as necessary for as long as necessary. In effect, we have a tiny group of unelected officials pursuing a set of radical and experimental policies – QE infinity, money-printing, unlimited bond buying, call it what you will.

The impact of money printing and the value of the US dollar

And the theory behind this activity is simply crazy. When have price controls and state intervention ever worked? I don’t just mean for the US Treasuries market, but for any major market at any time? State intervention always fails. The Fed is simply setting up what looks set to be the largest Ponzi Scheme in history.

What’s more, because financial markets are interlinked, indiscipline in one market soon ripples through the system and unintended consequences impact many other markets. Wall Street traders, both currently and historically, price junk bonds off the US ten year treasury, which currently trades at an implausible 1.61%. But since the US Treasury market is flawed, every related market is too. As the Economist notes, a bubble is being inflated in government bonds, quality corporate bonds, junk bonds, and (I would add) global equities. As that newspaper comments, ‘When the market does turn everyone will want to head for the exit at once, as was the case with mortgage-related bonds in 2007. That might turn a retreat into a rout.’ I’d agree, except that the word might ought to be will.

The Feds exit strategy: Pray

And all this wouldn’t be so bad, except for one thing. What’s the exit strategy? Could it be hope-based by any chance? How do you climb down from these heights? Who will buy these bonds when the Fed stops? Who absorbs the losses? What exactly happens to the economy when interest rates normalize and bond prices collapse back to normal levels? Indeed, what happens to the banks when they can no longer sell their lousy assets to the Fed, can’t bump up their profits by selling no-bid services to the dumbest buyer in town? Too big to fail is still getting bigger.

The fiscal cliff is scary, because an abrupt one-off change in fiscal posture is a dumb way to do something that needs doing. But still, it needs doing. If a temporary economic slowdown is the price we pay for that, too bad. We’ll still be in better shape for taking the hit.

The monetary neutron bomb is worse. We’re still building it. No one’s talking about it. And the amounts are colossal.

Those same finance ministers are also set to approve a year’s delay in the deadline given to Spain for reaching a budget deficit of 3% of GDP. That won’t, of course, be the last bailout for Spain and, please note, a budget deficit of 3% is still pushing debt ever upwards in acountry whose economy is getting smaller not bigger.

Unsurprisingly, government bond markets have once again been wildly unimpressed. Spanish bond yields briefly touched 7% today, before falling back. Given that Spanish debt (according to the misleading official figures) is around 7% of GDP and rising fast, interest rates at this level mean that about 5 cents in every euro are going to pay the interest on that debt.

The costs of euro collapse will be huge, but those costs are coming anyway. And they only get bigger the longer you defer the moment of truth

Put another way, Spaniards have to work about three weeks a year, simply to pay off the interest they owe on the national debt. No wonder their economy is failing under the weight of that burden. No wonder unemployment is so extravagantly high.

It’s time to end this massive Ponzi Scheme. If the problem is too much debt, you don’t solve the problem by extending more debt. If the problem is banks with irresponsibly reckless lending practices, the solution is not to “gift” them more money. If the problem is a wildly uncontrolled money supply, you don’t solve that problem by printing money until the presses are smoking hot.

A Ponzi Scheme is any merry-go-round fraud where you have to keep pulling new idiots into your scheme to keep things going. It’s the economics of the chain-letter. People can sometimes make money, but only if the supply of idiots is big enough. These things always collapse – and collapse disastrously – in the end.

We’re near that point now. Spain can’t receive a Greek-style bailout: all the EU rescue funds combined don’t have the resources to do it. Even if Germany decided to do all it could, the scale of these debts would simply overwhelm Germany’s (already very indebted) economy. In any case, if the fairies came and Spain were rescued, the pressure on Italy would soon become almost overwhelming. And though France hasn’t been hitting the headlines recently, it has higher debt than Spain, a history of deficits and a huge banking sector with vast exposure to Spain, Italy and Greece.

So why not let’s just call it a day? For Spain. For Italy. For the Euro. For this whole misconceived and duplicitous Ponzi Scheme. The costs of euro collapse will be huge, but those costs are coming anyway. And they only get bigger the longer you defer the moment of truth.

David Cameron wants to hold a referendum on Europe sometime after the next election. But he’d better get on with it. Europe, in its current form, doesn’t have that long to live.

I published this in the Daily Mail.

Shhhhhhhh!

But wait up. A hundred billion Euros? Lent secretly? On unknown terms and conditions? And the entire operation conducted by a bunch of unelected officials and scarcely reported in the media.

Please don’t think that these things happen in Europe but could never happen in the United States. They happen here all the time and on a colossal scale. Remember that Bloomberg fought the Federal Reserve all the way to the Supreme Court in order to establish that the Fed lent over $1.2 trillion to the US banking system and that those loans went ahead unbeknownst to and unauthorised by Congress. Oh, and although I say ‘the US banking system’ what I really mean is ‘any bank that puts its hand out for some cash.’ So the Federal Reserve considered it appropriate to hand over some of your dollars to such not-very-American institutions as the Royal Bank of Scotland, the Belgian bank Dexia, Credit Suisse, Deutsche Bank, the Italian Unicredit, and too many others to name.

Yet nothing happens. When Bloomberg broke its story about the Fed’s secret lending programme, a few other news outlets picked it up, but nothing changed. The same people are in charge of the Federal Reserve. They don’t think they did anything wrong. No central banker thinks that the ECB did anything wrong by handing a hundred billion euros to the collapsing banks of a failing country. It’s just the way these guys do business.

Just to be clear, though, there are alternative ways to do business. You might, for example, think that we should follow the following elementary rules: the central bank should avoid printing money and generating inflationary pressures which affect us all; bankers should lend money prudently and with proper due diligence; if those loans go bad, the banks should lose their money; and, over time, those banks are either left to go out of business (if they’re dumb) or encouraged to shape up and improve (if they’re not.) That system even has a name. It’s called capitalism. We had it in America once.

But not any more. We live in a world where moral hazard reigns supreme, where acts of gross stupidity seem to lack consequence. Where central bankers print money and no one cares. Where banks make dumb loans and get bailed out. Where politicians just want to get re-elected and know that the media is going to analyse the spin down to the very last molecule and leave the substance well alone.

Take some other recent news items. Facebook’s IPO saw its shares trade up to $45 before falling back to as little as $31, a fall of some 31%. It is alleged that Morgan Stanley, one of the banks running the stock offering, revealed data to its institutional clients that it did not share with its retail clients – data that, in effect, called into question whether Facebook’s high valuation could be justified. Morgan Stanley insists it followed every dot and comma of the relevant regulations, and perhaps it did. But retail investors have still lost a shedload of money. And Morgan Stanley and its peers have still made a huge amount in fees. If Morgan Stanley truly did follow procedures, those procedures are plainly inadequate.

Or take JP Morgan’s recent $2 billion trading loss. That arose in a bank which prides itself on its careful risk management. Which has lobbied vociferously against regulations which would prohibit the kind of activities which led to that loss. A bank which is surely ‘too big too fail’ – and in my eyes, therefore, also too big to exist.

Yet nothing changes. Just ask yourself these questions. Will the Fed never again extend secret loans to dodgy banks? Will Wall Street firms never again run an IPO that destroys billions of dollars in value for retail investors? Will Wall Street so clean up its act that it never again reports billion dollar losses because of dumb-but-greedy trades?

You know the answers. Nothing changes. In Europe at the moment, a calamity is unfolding. The Spanish bank, Bankia, has had its shares suspended as it seeks to apply for yet more state aid. The Spanish government, terrified by the way the ground is moving under its feet, is beseeching the Germans to help them borrow more money, so they can pass that money on to the same unreconstructed banks that lost it all in the first place. And meantime government deficits go on adding to the ever-less-supportable mountain of debt.

The United States is not yet in that position, but the preconditions are all here. An uncontrolled deficit. An out-of-control banking system. And politicians who would rather defer any problem than tell the truth about the mess we’re in.

This article was published in todays Huffington Post

But although the horizons are red with fire and every new day brings news and rumours of further catastrophe, you need to realise that we’re on the brink of something bad. We’re not actually in it.

So what comes next? It’s a question that you may reasonably ask (worried about job, savings, wages, inflation). But it’s also the question which is being asked across Europe: in the governments of Greece and Spain, those of France and Germany, by the central banks, by the banking industry – and indeed, by every private sector entity which touches those things, which is to say absolutely everyone and everything.

Expect a messy exit: A paint-spattered protester outside the European Central Bank

And no one knows. Or, to be precise, no one knows the exact way events will unfold, but there are some broad predictions which we can make with some confidence.

Prediction One: Greece will leave the euro. The ‘bailout’ offered by the EU was help of absolutely the worst sort. It was generous enough (just!) to prompt a beleaguered government to accept it. But the terms were so parsimonious that it left Greece still just inches from the financial disaster zone. It was as if the EU saw a starving man and chose to give that man just enough food to keep him from death, but not enough to permit recovery. If the Greek people are rebelling against the terms they were offered, they have my sympathy. I think they’re right.

Prediction Two: as Greece falls, the other weak countries of the Eurozone will come under intense pressure – worse than anything we saw even in the dark days of last autumn. Ireland (with its fundamentally strong, flexible and low-tax economy) will probably be OK. But the countries of southern Europe face some terrifying problems: weak growth, a woeful lack of flexibility, dodgy banks, and no fiscal room for anything except more austerity.

And the thing is, if you take a reasonably decent economy – Ireland, Britain, Germany – and impose austerity, it’ll be painful (it always is) but you know that the economy will, sooner or later, spring back into growth. The situation in the south of Europe isn’t like that at all. Italy, despite years of easy money, grew by just 2.5 per cent between 2000 and 2010. That’s not 2.5 per cent a year, it’s 2.5 per cent a decade.

The storm clouds are gathering: Greece’s departure from the Euro will place Spain and Italy under intense pressure

Or take Spain. Spanish growth looked good, but it was boosted by an utterly unrealistic reliance on construction – an industry which accounted for one sixth of the entire economy at its peak. Since Spain is now grossly overbuilt, that one-sixth is now pretty much dead and will never come back. Toss some brutal austerity measures onto these horrible starting conditions along with massive unemployment and it’s little wonder that the bond markets are nakedly terrified that they won’t get their money back. (Oh, and if you read that sentence and think, “serves the damn bankers right”, you might just want to remember that your pension fund is probably invested in those markets.)

Prediction Three, then: the failure of the euro won’t stop at Greece. It’s hard to say from here which country will be first to follow its lead, but I personally wouldn’t buy Spanish, Italian, or Portuguese bonds at anything more than 20-30 per cent of face value. (And that’s being nice: Greek bonds have lost much more than that.)

French President Francois Hollande was elected on an anti-austerity platform – but may struggle to keep his promises

Thus far, my predictions would be fairly widely shared among financial experts. Thereafter, it’s hard to read the future. Take, for example, the ‘simple’ question about what happens if Greece quits the Euro. Any business (and any bank) will have its liabilities denominated in euros, not drachma. Foreign creditors won’t want to be repaid in devalued drachma instead of the promised euros, so a wave of bankruptcies seems likely. Not just the government, but probably all of the banks, and countless businesses too. Naturally the Greek government will want to pass laws that reconstitute those businesses in double-quick time, but the scale of the task is Herculean. And the Greek government isn’t exactly noted for economic and administrative prowess.

Since the imminent failure of Spain and Italy would create problems far larger in magnitude, the ripple effect could be enormous. In fact, can you scratch that term ‘ripple effect’. There are no ripples here, only tsunamis. Just think for example, how France would be affected by the collapse of Spain and Italy. The French economy is deeply entwined with those two and their failure would bring the financial storms right to the steps of the Quai D’Orsay. Francois Hollande may have been elected on a no-austerity platform, but he might as well promise an end to gravity. So, Prediction Four: the French are about to endure a savage austerity programme of their own. And bonne chance in explaining that one, Monsieur.

Thereafter, what to say? The central banks won’t take any blame for creating more than a decade and a half of loose money and massively inflated asset prices. Politicians will continue to prefer comforting lies to brutal truths. No bankers will go to jail, even though they’ve done more than anyone else to create this mess. Germany will be fine. Britain too, in the long run, though it’ll be a long, slow slog: longer and slower than any of the official forecasts had predicted. And when even Ed Balls is still mulling the possibility of a British referendum on Europe, who knows how far the whole European project might yet unravel?

But these are big questions and perhaps distant ones. What about you? Your job, your savings, your pension? Well, I honestly hope and pray you’ll be OK. These are rough waters we’re entering. We ain’t seen nothing yet.

My article was published in todays Daily Mail

It’s OK for firms to make money. That’s what they’re there to do. But real firms, durable ones, the ones who care about their reputation, their future, and the generations that come after, have figured out that you need to take care of yourself by taking care of your customers. Do the second thing right and the first will come of its own sweet accord.

Greg Smith’s recent wail of resignation made it clear that Goldman Sachs has long lost touch with these simple truths. In his words, ‘It makes me ill how callously [Goldman staffers] talk about ripping their clients off.’ The thing is, though, you don’t have to be a client of Goldman’s to lose out, you just have to be, well, a human — or at any rate a human whose assets amount to more than a mud hut and a couple of scrawny cows.

Because this is a financial story, we need to start with the money. As of December 2011, Goldman Sachs owed $814 billion. That’s more money than is owed by all but five of the European Union’s 27 members. Indeed, that’s hardly putting it strongly enough. Spain owes somewhat more money than Goldman Sachs, but is almost buckling under the pressure. Not Goldman. If Goldman wanted to raise more capital and expand its balance sheet, it could easily do so. Spain couldn’t. That’s how big the firm is. How big and how powerful.

How you use such power matters and unfortunately Goldman’s sticky fingers are all over the scene of recent economic crimes. Take the meltdown in Greece, which brought the world to within a whisker of financial catastrophe last fall. Part of the problem there was that Greece kept fiddling its data: it lied to European officials about the true extent of its borrowing. Those lies needed some help and Goldman — how unsurprising is this? — was there to provide it. In the words of Der Spiegel, ‘Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country’s already bloated deficit.’

Or, to put it simply, Greece wanted to lie about its finances, at huge cost to its taxpayers and to the world economic system, and Goldman was on hand to make it happen. Goldman reportedly made a gross profit of €600 million on the trade.

Athens burns while Goldman's profits with impunity

But we don’t have to travel overseas to find economic crimes sticky with Goldman’s prints.

During the financial crisis of 2008-09, the American government bailed out insurance giant AIG at a costof some $182 billion. Those billions flowed largely to various Wall Street firms, including Goldman. For a long time, Goldman protested that the money ($12.9 billion) it received was simply passed on to clients … until, oh gosh, the facts proved otherwise. It turned out that in fact Goldman collected $2.9 billion for its own account. And that’s $2.9 billion of pure profit.

You need to notice two things about this. First, where the money ends up — Goldman guys with huge bonuses — but secondly the amazing wastefulness of the system. Taxpayers shelled out $182 billion. Goldman pockets just under $3 billion. Some of those surplus billions went to other Wall Street firms, but much of it went to support foreign banks and foreign bankers. American taxpayers should not be called upon to support failed businesses in other countries, but the Goldman merry-go-round wouldn’t have worked any other way, so to hell with the American taxpayer.

And who engineered this bailout? Why, none other than Goldman old boy, Hank Paulson. Who avoided some $200 million in personal taxation when he become US Treasury Secretary — a gain which puts into the shade his mere $40 million annual compensation while at Goldman.

Not that, mind you, it makes much sense to obsess about a few billion dollars snatched from the American taxpayer, when the real rip-off ran to the hundreds of billions of dollars. A July 2011 report from the US General Accountability Office found that the support for Goldman Sachs in total amounted to some $814 billion. Or approximately the quantum of Goldman’s entire liabilities. You want a rip-off, that’s it right there.

Or take other economic crimes against humanity. When broker MF Global went bust — because of excessive leverage and a reckless approach to risk — it turned out that its clients’ money had gone walkabout. As of today, according to Reuters, ’MF Global U.S. trustee James Giddens is trying to track down an estimated $1.2 billion of customer assets that have seemingly disappeared from the broker’s books.’ What idiot could lead a firm to such a horrendous collapse? Why, a Goldman guy, of course: stand up Jon Corzine, former senator, former NJ governor and former chairman and CEO of Goldman.

We could go on. Robert Rubin, formerly co-chairman of Goldman Sachs, became US Treasury Secretary under Clinton and piloted through the repeal of the Glass-Steagall Act and helped to exclude OTC credit derivatives from oversight by the Commodity Futures Trading Commission. Those things might sound arcane and technical, but they stand at the very epicenter of the 2008-09 financial crisis. If credit derivatives had been strictly regulated, and a strong version of Glass-Steagall had remained in force, Main Street would not have been required to bail out Wall Street. Lehman could have folded, Bear Stearns and Merrill could have folded or been bought up for a handful of nickels — and no one would have cared. These things did not have to affect your life, your job, your wage, your savings or your pension fund. (If you were the guy with the mud hut and the scrawny cows, you probably did just fine, however.)

Or take Mario Draghi, formerly vice chairman and managing director of Goldman Sachs International. As incoming head of the European Central Bank, Draghi has been responsible for pouring €1 trillion of easy money into a tottering European banking system. You can call that a rescue operation if you like — but what exactly is being rescued? The collapsing banks and irresponsible governments most responsible for the current crisis. The firms and institutions who form Goldman’s crucial European client base, in fact.

We could go on. Sometimes it’s (alleged) crimes that you notice: people like Rajat Gupta, former Goldman Sachs director, currently under arrest on charges of insider trading. But more, it’s the extent of the firm’s influence. Not only does it seem to be the preferred supplier of US Treasury Secretaries, its alumni pop up seemingly everywhere. The current Prime Minister of Italy, Mario Monti, is a former Goldman adviser. Or check out the resumes of Petros Christodoulou, Peter Sutherland, Otmar Issing, Antonio Borges, Bob Zoellick. Important people, who have taken fistfuls of money from Goldman Sachs. Important people who have, to a remarkable degree, supported and defended the reckless leverage and opaque accounting of a system from which Goldman draws its colossal profits. The influence reaches far past matters of country, party or ideology. The only ideology which matters is that of self-enrichment. That of allegedly ripping off clients.

It’s time to put a stop to this. In Britain, a firewall is (slowly!) being erected which will, in effect, build a Glass-Steagall-style barrier suited to the twenty-first century. The United States needs just such a barrier, and neither the watered down version of Dodd-Frank nor the current shenanigans over the Volcker Rule promise to provide one.

But regulatory barriers are only half the story. The corruption of excess influence also needs to be terminated. No US Treasury Secretary with strong links to Wall Street should ever again be appointed. No central banker with a past in casino capitalism should be trusted to keep his instincts at bay when placed in charge of a national (or international) currency.

Wall Street will argue that such a policy would be reckless in the extreme: you might get a Treasury Secretary who didn’t fully understand credit derivatives or the subprime mortgage game. And that’s perfectly true. You might. Which would be an unmixed blessing. Opaque financial products that normal smart people don’t understand? We didn’t want the damn things in the first place. Soft loans to weak banks in support of crumbling governments? Who the heck would vote for that?

Not me. Not you. No one beyond those on Wall Street. It’s time that the excessive influence of a single wealthy firm was halted. Let’s just say no.

My blog Goldman & Friends was also published in todays Huffington Post