Argentina : Greece :: Citibank : Deutsche Bank :: 1987 : 2012?
Lets return to those thrilling (and not in a good way) days of yesteryear, to the late 1970s, when (as I keep having to remind people) Saudi Arabia, Egypt, and Venezuela had just taken advantage of the fact that the US Marine Corps was still reeling from their humiliating defeat in Vietnam, and was in no condition to come and take their oil away any more, and on the pretext of protesting US support for Israel, quadrupled the price of oil overnight. When you quadruple the price of the most important input to every single manufactured good on the planet (and a fair amount of its food supply), unsurprisingly the result is runaway inflation and a crashed economy for the decade or so that it takes to reprice every good and service on the planet around the new raw-resource prices.
(Reagan, who like most Republicans was deeply in bed with the Saudi royalty, blamed the unions instead, because he didn't need the Marines to crush them, and being seen to do something was politically savier than what his predecessor did, which was nothing. And claimed credit when the economy finally naturally recovered. But that's neither here nor there.)
Several consecutive years of runaway inflation put the banking sector in a bad way: who puts money into banks when they're guaranteed to lose money to inflation? Who puts money into a 6% savings account when inflation is 11%? So the banks convinced President Carter, and Congress, to lift all the existing restrictions on what they could invest in, in hopes that they'd find something that would reliably pay greater than 11% return on investment, so that people and companies would go back to putting money in savings accounts. And, being a coke-fueled gang of inbred upper-class morons, the banksters of the mid 1970s to the early 1980s followed each other over an entire series of cliffs, in exactly that way that real-world lemmings don't.
The first disastrous cliff was Houston commercial real estate, on the half-brained theory that oil would never, ever, ever drop below the price at which it was profitable to drill through deep layers of Texas/Oklahoma granite to get to it, and in support of the Randroid theory that Houston's libertarian lack of zoning regulations meant that its real estate market would always be profitable; as soon as all the banksters were invested to the hilt, Iran and Iraq went to war on each other, ignored their OPEC quotas and briefly crashed the price of oil, just long enough to bankrupt every oil company and every real estate developer in Houston. And, of course, the banks that lent them the money to saturate Houston with empty office towers.
(Joke I heard at the time: Two girls are walking through the woods when they get stopped by a talking frog: "Kiss me, I'm secretly a Texas oil baron!" One of the girls picks up the frog, starts to kiss him, thinks twice and instead tucks him into her purse. She explains to the other girl, "It occurred to me that in today's economy, a talking frog is worth more than a Texas oil baron." P.S. You've heard of one of those suddenly-worthless Texas oil barons; he just got convicted of war crimes the other day.)
There was an equally disastrous third round of industry-wide self-immolation, the fad for issuing junk bonds to corrupt leveraged buyout artists that paid themselves multi-million dollar salaries while selling off all the production equipment in a company and liquidating the pension funds in order to pay junk-bond interest rates; the banksters thought that there would be enough money left to pay those loans back before the resulting companies went bankrupt. There wasn't. It wasn't until their fourth try that the banksters found a scam that actually worked: issuing 9 times as much credit as people could actually afford to American middle class households, and then soaking them with fees and penalty interest rates, because it turns out that middle class families will, in fact, work 80 to 100 hours a week each and loot their kids' college funds, and even starve their kids and skip doctor appointments if necessary, to preserve their credit scores. (And now you understand why, during the Clinton administration, we got "bankruptcy reform" that made it impossible to get out from under those debts.) Besides, by the time the bankster herd got en masse to the fourth scam, OPEC's one-time price spike had been priced into everything, so the era of runaway inflation was over. Even so, they still required repeated rounds of billions of dollars worth of taxpayer bailouts to return the industry to bare profitability.
But you'll notice I skipped the second one? The second one is the one that's relevant to Greece now.
Having utterly lost all of their capital to a slow-motion bank run caused by stagflation at home, having then raised more capital and lost all of it over-spending on Houston commercial real-estate right before an American oil-industry temporary bankruptcy, they raised yet more capital and invested it all in a brilliant idea: third world sovereign debt.
These were countries all over the southern half of the globe that were trying desperately to catch up with Europe and North America, that needed to borrow tons of money if they were ever going to build the stuff an industrial economy needs: schools, colleges, roads, ports, markets, factories, worker housing, police stations, court houses, etc, the stuff that Europeans built (originally) with money they looted from the third world during the colonial era and that America built with the money they looted from the third world and from the Europeans when people had no choice but to pay any price we demanded for industrial goods after World War II. The countries that had been twice victimized by imperialism and colonialism had none of this stuff, and were eager to borrow money to build it ... even at the ruinous interest rates they were being charged, on the basis of the fact that, as countries that didn't yet have any of the stuff you need to run an industrial economy, they had no tax base to speak of.
But in the late 1970s, American banksters reasoned it like this: third world governments may pay high interest rates because they have no choice, but there is no way any government ever will default on their debts. Ever. They wouldn't dare, because it would only drive their interest rates higher, because it would deprive them of any chance to ever borrow money again, of any hope of ever catching up with the rest of us. And besides, they don't ever have to default on their debts: they have armies that can go out and collect whatever they need to from their own citizens if that's what it takes to pay off the debt. So every coke-fueled inbred upper-class yuppie bankster twit in America rushed to take what little money they could still raise on the stock market (after two consecutive idiocy-fueled industry-wide crashes) and lend it out to every country in Latin America, in Africa, and in colonial southeast Asia.
They loaned money to those countries in quantities and at interest rates that they knew, knew for a fact from their own in-house economic analysis, those countries could never pay back by anything like normal tax collection on a productive economy. If nothing else, the loans were due long, long before any of the stuff they were borrowing to build would be profitable. But more to the point, they also knew, from what their own loan representatives were telling them, that 50%, 75%, sometimes even 95% of the money lent was just being outright stolen, that only trace amounts of it were being invested in actual capital that would actually make the countries profitable. Which was just fine with the banksters; a fair amount of the stolen money was coming back to the banksters as deposits, after all. They're going to borrow money from us at 19% and lend it back to us at 6%? Okay!
And they knew what they were going to do when the loans came due, too. They knew that by then, the CIA and the US Marine Corps would be back up to strength, and that no US president would ever, ever let some little third-world country get away with defaulting on a debt to an American corporation. If any country tried, they knew that the US CIA and the US Marine Corps would intervene to install a military dictatorship that would, if need be, send their own army out into the countryside to seize every possible resource, to seize every capital good, and to ship those all back to the US for free to pay off those loans. Because, you know, if they don't? That's communism! And in 1985, under pressure from the US, that is exactly what those countries tried to do.
And over the next two years, voters and peasants revolted - and won. One by one, starting with Mexico and ending with (if memory serves) Argentina, governments came to power that just flat-out said: send the CIA if you want, send the Marines if you want, they won't be able to install a government, any kind of a government, no matter how repressive, that can actually seize those assets. It can't be done. There just aren't enough assets to seize, and the people just aren't standing for it. We default. We're screwed? Fine, but so are you. Every savings-and-loan in the country went under, that's why they called it the S&L Crisis. Among the commercial banks, Citibank alone lost the equivalent of six billion dollars in today's terms. The whole American banking sector was, for the third time in not much over a decade, wiped out and had to be bailed out by the taxpayers.
I wonder if there's anybody left at Deutshe Bank that lived through those years, and realizes the parallels?