From Extend-And-Pretend To Lie-And-Deny

Submitted by Mark J. Grant, author of Out of the Box,

“People think that a liar gains a victory over his victim. What I’ve learned is that a lie is an act of self-abdication, because one surrenders one’s reality to the person to whom one lies, making that person one’s master, condemning oneself from then on to faking the sort of reality that person’s view requires to be faked…The man who lies to the world, is the world’s slave from then on…There are no white lies, there is only the blackest of destruction, and a white lie is the blackest of all.”
           -Ayn Rand, Atlas Shrugged
What I have been attempting to point out for years now is that Europe lies to us with great regularity. Whether it is the way they count their debt to GDP ratios or what is not told to us as a matter of course. In the baffling minds of the EU leadership the preservation of the Eurozone comes first no matter the cost, no matter the deception and no matter the lies that must be told to further that goal.
“Anything is better than lies and deceit!”
     -Leo Tolstoy, Anna Karenina
The problem here is not so much that the lies are told but that the lies are believed. Every politician on the Continent trumpets and echoes what they want you to hear and believe and then they expect you to act upon what you are told. Every media publication, as an example, repeats the official debt to GDP ratios as a matter of truth because that is what they are told. Then everyone is, "Shocked…Shocked" when the numbers do not add up and the bills that must be paid are so high because what is uncounted or what is lied about still has to be dealt with in the end.
“In thy foul throat thou liest.”
                 -William Shakespeare, Richard III
All of this then brings us to the article in the Financial Times today about the plight of Italy. It was more than two years ago when I wrote a piece about the derivatives contracts in Italy. The numbers were first exposed in the Italian Parliament but apparently they have been forgotten. The numbers for the total amount of derivatives contracts for Italy was more than $200 billion. The FT comments about sixteen percent of these today as I am highly dubious that the rest have been forgiven or paid off in the meantime. The Italians did the EU dance, "extend and pretend" or "lie and deny."
“And once when we were walking on Bredon Hill, we met a bedraggled and exhausted fox. 'Oh, poor thing,' Jack said. 'What shall we do when the hunt comes up? I can already hear them. Oh, I know -- I have an idea.' He cupped his hands and shouted to the first riders, "Hallo, yoicks, gone that way," and pointed in the direction opposite to the one the fox had taken. The whole hunt followed his directions. There followed a long discussion about when lying was morally justifiable, but he boasted delightedly later to my wife that he had saved the life of a poor fox and showed no trace of guilt.”
               -George Sayer, Jack: A Life of C.S. Lewis
No matter; the bills must be paid. No matter; the debt to GDP of Italy is more than 236% without the derivatives and only God and perhaps Mr. Draghi knows what the real numbers total. I certainly do not but I would guess they are crushing. In the meantime, because everyone was baffled, bamboozled and fooled; the yield on Italian sovereign debt dropped. I do not argue with this reality and money was made but I will say that the behavior of investors has been idiotic in believing the nonsense that we are handed and then in acting in this manner upon it.
“I lied," I said. ...
"I know it," he said.
"Then do something about it. Do anything, just so it's something."
"I cant," he said.
"There aint anything to do? Not anything?"
"I didn't say that," Grandfather said. "I said I couldn't. You can."
"What?" I said. "How can I forget it? Tell me how to."
"You cant," he said. "Nothing is ever forgotten. Nothing is ever lost. It's too valuable."
            -William Faulkner, The Reivers
Please recall that the Italian government, after paying off one derivatives contract to Morgan Stanley, said that there were no more derivative settlements that would be forthcoming. Another, "Obviously not the truth statement." Then there is Mr. Draghi who was head of the Italian Treasury during the time when many of these derivatives contracts were concocted. All of the credibility of a snail who proclaimed that he would not be cooked and was later found on a plate of escargot.
“Sin has many tools, but a lie is the handle which fits them all.”
            -Oliver Wendell Holmes Sr., Autocrat of the Breakfast Table
In my mind the "lie and deny" about the Italian derivatives contracts is the smallest of the issues. The larger issue would now be Mr. Draghi who can no longer be trusted but that is still not the largest of issues. The largest problem, in my way of thinking, is the delusional state of investors.
It is quite obvious, based upon where the markets have been, that we have swallowed and continue to swallow the rancid meat we are handed and told to eat and further told that it will keep us all healthy. The dislocation between the markets and economic fundamentals, as I have said so many times before, is enormous. The dislocation between the real, truthful and honest economic fundamentals, as exemplified by the Italian derivatives contracts, and the markets is now enormous squared.
Will this ever be really recognized; I have no idea. Will people ever wake up; I cannot say. I can say this though. If they do Dante's Inferno will look like Paradise Lost.

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