by George Atsalakis
and Ioanna Atsalakis
Greece has gone bankrupt four times in the past Germany went bankrupt during the middle war and in postwar years and Britain in 1945. The most recent bankruptcies were of Russia and of Argentina in 2002.
The first bankruptcy of Greece was realized in 1827 a little bit after the outbreak of the liberation fight for freedom in 1821. Without the official existence of a Greek government, the revolutionists were unable to pay back the debt of that time of 2, 8 million English pounds.
In 1843 a second bankruptcy struck, since Greece was unable again to pay back the debts received by the Great Powers.
In 1893, Charilaos Trikoupis uttered the well-known expression «unfortunately gentlemen, we are impoverished». Greece was unable to pay back external debts of 585, 4 million francs.
The national disaster in Asia Minor in 1922 and the influx of refugees, led the Greek government to extensive lending, resulting in a new bankruptcy in 1932 with a total debt abroad of 2.886,1 million gold francs.
The above loans were finally paid off in 1967, thirty-five years later ….
There are many times when stock market crashes and bankruptcies wane peoples’ standard of living.
The worse Thursday of the international economical history was on the 24th October 1929, the day of the big Stock Market Crash in the Stock Exchange of New York. The consequences of the abrupt and extensive three-year slump of stocks and shares were immense for the American and international economy during the 1930s. Prolonged unemployment and poverty triggered social inequalities and upheavals, which paved the way for the outbreak of extreme social phenomena like the rise of fascism in many nations.
Dow Jones index showed a loss of 9% on black Thursday 24/10/1929. Next Tuesday the loss was 12% and the total loss in the market was 14 billion dollars. A week later the loss reached 30 billion dollars, an amount that corresponds to ten times the annual Budget of the Federal Government and many times more than the amount the U.S.A had spent during World War I. After the recession, Dow Jones was recovered for a while in the beginning of 1930, however relapsing again on 8th July 1932 (the lowest level since 1800). The market reached the pre-1929 levels just before the ending of 1954 (25 years later).
From 1921 until 1929, Dow Jones index reached 60 units while previously it was 381, 17 units (3/9/1929), and the price of shares was reinforced by 218, 7%, an equivalent rate compared to the annual rate of development of 18%. From 1929 until 1932, the stocks and shares in the Stock Exchange of New York showed a considerable loss of 73% compared to their value.
The shady speculative role of the banking system with the uncontrollable credit lines was the prime reason of the Stock market crash.
The banks and their subsidiary stock brokering companies that were constantly borrowing money from were functioning without any control. The investors believed that they could be protected by the Federal Bank of the U.S.A, which was founded in 1913. The non-existence of the Securities and Exchange Commission and neither of a service which guarantees the deposits resulted in throwing the investors on the mercy of relentless bankers-speculators. The latter took advantage of their powerful financial and social status to immorally misuse the mechanisms of the market, passing the burden on the rest of the investors. From 1925 until 1929, 10% of American households invested in the Stock Exchange encouraged by President Roosevelt, as well.
Many banks which had deposited the money of their customers in stocks and shares, through their subsidiary stock brokering companies in order to obtain greater profits, faced grave problems and went bankrupt. In 1930, nine million saving accounts were reduced to zero and 85.000 firms went bankrupt. Until 1932 the number of unemployed had reached 14 million people along with free meals, deaths due to hunger, slum houses for the homeless. These were common images for many years. 23.000 people in total committed suicide. Another World War was needed to let the U.S.A and the rest of the world survive the financial recession of 1929.
It has been calculated that due to the stock market crash of 1929, about 11.000 out of the 25.000 financial institutions in the U.S.A went bankrupt. However, those driven to bankruptcy were not the financial groups that were playing a crucial role in the system. According to Judge Pecora, the person who investigated the recession of 1929, there were three major factors:
A) Jack Morgan who comes of a family of bankers activated in the economy of the U.S.A. He was one of the 11 bankers who introduced the establishment of the Federal Bank of the U.S.A. During the First World War he lent 50 million dollars to France and 12 millions to Russia. He functioned as the sole in-between regarding the purchase of munitions of the British from the U.S.A. His bank kept a list of privileged customers comprised of highly-rank officials from the governmental, judicial and legislative aspect of the country (ministers etc). One of the privileges of the officials in the list was the purchase of stocks and shares in reduced prices (the reduction was even 50%) compared to the price which was negotiated by the Stock Exchange. It was proved that during the three years of the recession, he did not pay income tax.
Some people of this bank managed to sell 1.900.000 shares, using every way, on an average price of 340$ per share. Within a few months the quotation had reached 30$.
B) Charlie Mitchell, chairman of today’s City bank. Even though he had received 3, 5 million dollars as a bonus during this crucial period of three years, he did not pay any income tax since he stated 2, 8 million dollars loss. He triggered moral issues when he sold 18.300 City bank shares in 1929 to his wife at 212$ each one and bought them back at the same price in 1932, even though the price at the Stock Exchange was 42,5$ so as to show increased expenses. At the same time he was the chairman of the Federal Bank of the U.S.A. Even though the Federal Bank of the U.S.A had suggested that the banks should cease lending their subsidiary stock brokering companies, this recommendation did not prevent his own bank to lend money to its own subsidiary stock brokering companies amounting to 25 million dollars in order to «reinforce» the market.
C) Albert Wiggin, chairman of Chase National Bank betted to the drop of the price of his own company risking 42.506 stocks. He gained 4 million dollars from this transaction but he did not pay any income tax.
The above three people and their banks were not only the instigators of the greedy system that created the Stock market crash, but constitute the «system» itself.
The Pecora deduction initiated the creation of the Securities and Exchange Commission and the legislation on the investments guarantee. In the bill of Glass-Stegal there is a separation of the role of the investment banks and trade banks. The trade banks were not allowed to invest in the Stock Exchange and negotiate stocks (shares, bonds etc) of any kind. This prohibition was abrogated in 1999 during Clinton’s government 70 years later. At this point there is the creation of huge financial institutions that multiply activated in the field of trade banks as well as investment banks. Today again due to uncontrollable credits, which led to the Stock market crash of 1929, we are facing a serious credit recession. The credibility of the Securities and Exchange Commission and the banks is questionable, since they did not try to limit excessive lending and the leverage of credits in time.
From 2008 until today giant firms such as Citigroup and the Bank of America are under state control. Merrill Lynch would not survive if there was not a merger on behalf of the Bank of America, repurchasing it for 50 billion dollars within a framework of a deal which is under investigation by the judicial authorities of New York and the Securities and Exchange Commission. Bear Stearns, after a presence of 85 years, was bought out by J.P. Morgan Chase for 2 dollars per share. Let us not forget as well the case of the American International Group, which was nationalized by the federal state of the U.S.A with 85 million dollars of the American taxpayers. The two biggest housing firms of the U.S.A, Fannie Mae και Freddie Mac had relative luck. More than 150 banks have gone bankrupt during the last two years.
It is comforting, though, today that there is a concerted governmental interference for the prevention of bankruptcies on behalf of huge financial institutions and the reinforcement of economies with added liquidity. This is combined with a guarantee in the deposits, a fact that prevented a repetition of big unemployment rates, bankruptcies, homeless people, deposit loss and suicides that were realized in 1929.
However, even today in Greece, the continuous tendency of the state, the households and the firms to excessive borrowing constitutes a factor that undermines healthy development and delays ways to combat recession.
Thus, it is of utmost importance, nowadays that all political parties and services contribute towards the achievement of the Valorization Program of the Greek economy, so as the country is not to experience such financial mishaps again.
Source of publication 9th issue In-On