The government bails out the banks who bail out the governments who bail out the banks who…

David Goldman: on the EU’s $trillion bailout “…that was not a drill. It was the real thing. And that is why the European governments shifted from official complacency only days ago to total mobilization mode.”

The banking system really was about to come down. The reason is that sovereign debt is a bigger problem than subprime mortgages ever were. We know from available data that two-thirds of the US deficit, according to available numbers, has been financed by domestic as well as foreign banks during the last quarter of 2009 and the first quarter of 2010. This is clear from the Treasury’s data on international capital flows, which shows $50 to $60 billion a month worth of purchases of US Treasury securities from abroad, almost all of it from London or the Caribbean, that is, offshore banking centers. US banks meanwhile are adding Treasuries to their portfolios as fast as they shed commercial and industrial loans. Detailed data is not available on international banks’ holdings of Greek, Spanish, Portuguese or Italian bonds, but we know from anecdotal evidence that the weak sisters of southern Europe have been financed by bank treasuries just as the United States has. [From The government bails out the banks who bail out the governments who bail out the banks who…]

David has an associated much longer essay on the same topics in Asia Times: Ignore that Keynes behind the arras. After discussing the bleak future of Europe’s population dependency ratios, David looks at Greece:

(…) This helps us to answer the question: why Greece? First of all, corruption pervades Greek society to the point that to purge it would destroy the social fabric: all political and social relations are premised on corruption. But it is also the case that the population profile of Greece is much worse than the European average. By 2050, the elderly dependency ratio will rise to a frightening 59%, and the Greek state will be hard-pressed to meet its obligations under any foreseeable circumstances.