OS at Midweek 9 November

Other and better minds than OS are covering the comic opera of Europe in breathless detail. In summation, though, the consensus is: They're screwed. We're screwed, maybe, as well.

It reminds of OS of those ensemble scenes in Mozart's Marriage of Figaro, where everyone simultaneously sings to the audience while the orchestra grinds away, each proclaiming his/her own side of the story; but not one of the characters will actually bother to tell one another the truth of who they are and what they're attempting to accomplish.

Chaos ensues, comic chaos in Mozart's opera, something less amusing in real life today.

It isn't like this obvious sort of unraveling wasn't something unexpected. After all, if government debt is 120% of GDP (Italy referenced here), and yields climb above 7%, well then, you're screwed. The students can riot in the streets, the unions can strike, the religious fanatics can preach, the politicians can speechify forever. The math is the math is the math--it is inexorable.

They're screwed.

Enough about that. We now get to witness the proverbial other shoe drop in our generation, and wonder what will arise to take hold of the situation. And how much of the bill we here on Main Street will foot for the great welfare state experiment of post-1945 Europe.

Closer to home, this has been one of those weeks, one in which OS notices that it has become increasingly laborious to get simple stuff of life done. The firms he has encountered this week, in different industries, all seem to suffer from 'too much work/too few employees' syndrome, or 'internal conflicts of interest' syndrome, or 'failure to think ahead' syndrome, or 'failure to think pragmatically' syndrome.

It's been frustrating. Yesterday afternoon, OS just had to take a break and go for a walk, to calm down. He called a couple of friends who helped restore perspective. It's good to have friends.

Today, he's back in harness, pulling his load into the stiff headwind of the culture of the United States.

No great insights to lend, no news to report, no scandals to incite. OS is simply tired.

One bright spot however, comes from BBC Radio 3 this week. The Choral Evensong from Ely Cathedral was glorious this morning. The broadcast repeats Sunday afternoon, and then in podcast for a week after that. 

Greek Parliament Votes Tomorrow...

Tomorrow could interesting in Athens...



All those kids, screaming, 'Bread/Education/Liberty', most of them still believing that government can provide all three, and stick the culture with the bill.

What happens when it dawns on them it can't be done?

Now The Game Of Chicken Begins: Europe (that is to say, Germany) Puts Greece On Short Rations

Hmmm....mebbe, ya'll, everbody's havin' second thoughts 'bout keeping Greece fat and happy, cuz' it shore do look like throwin' good money after bad.

Things are getting tense and ugly, and it's now down to whoever blinks first. Betcha Zimbabwe Ben's phone has been busy, with all our newest-best-friends-in-Europe, who normally hate us, tryin to find some of our money-hunney throw on the Greek bonfire.

Rather like having a meth-head second cousin named Amos, whose got him a bunch-a-kids and no common sense. Shore, we'll help out, keep the lights and water on, make sure baby's got formula and diapers, food and overalls fer the others, and maybe a bit of gas for the car. But that Camaro he bought on credit has gotta get taken back to the dealership, and ain't nobuddy gunna contribute a dime to helping Amos maintain his favorite vices. Them daze iz over, ya'll.

'Course, Amos is gunna get purty hot when he hears the news, and threaten to create all sorts of chaos, and beat his wife and kids, you know.

We'll just have to take that chance. He lays a hand on our Jolene, he'll have bigger worries than having his ride repossessed, know-whud-I-mean? Shoot, he'll be relieved to see the sheriff roll up to arrest him.

Greece To Sell Assets, Surrender Sovereignity: Financial Times

Really, it's just like a bankruptcy, is it not?

European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens.

People involved in the talks said the package would also include incentives for private holders of Greek debt voluntarily to extend Athens’ repayment schedule, as well as another round of austerity measures.

Officials hope that as much as half of the €60bn-€70bn ($86bn-$100bn) in new financing needed by Athens until the end of 2013 could be accounted for without new loans. Under a plan advocated by some, much of that would be covered by the sale of state assets and the change in repayment terms for private debtholders.

The creditor takes a haircut, the debtor sells everything that isn't completely nailed down, and the court runs the debtor's life until the debts are all discharged.

It's a bankruptcy, pure and simple.

But, we dare not use that word, now do we?

This is what awaits us, sooner or later, in the US, if we don't develop the will to turn ourselves into a productive economy whose government exercises restraint in spending, legislating, and regulating. Only it's China toting the note. Do we wish to surrender large parts of our country and economy to the Chinese?

Really?

It will be interesting to see how this plays out in Southern Europe...

The Greek Two-Year Bond Now Yielding +25%: But, No Worries, Just Go Back To Watching 'Housewives' And 'Oprah'

What happens when a nation is run by politicians who promise to spend more and more into perpetuity, all the while simply borrowing from the rest of the world to cover its shortfalls?

It goes broke. Like Greece. And we get moon-shot charts of short-term gubbermint interest rates that look like this.

The US carries 15 trillion in debt, and Barry and Timmy insist we just must-must-must borrow 2 trillion more, lest bad-bad-bad things happen to us.

What might happen here?

OK, ya'll. Didn't wanna get nobody upset, heah? Jes' go back to that re-run of yesterday's NASCAR event, and make sure you got the tivo set up for wrasslin' tonight.

If It's Any Comfort, The US Isn't The Only Country With Both Financial Troubles And Illegals Streaming In

We all be Greek these days.

This Keeps Making The Rounds: Worth A Second Mention

Sometime back, OldSouth tripped across this wonderful comedy routine first created for Australian TV.

Obviously, he wasn't alone, and the routine continues to make the rounds.

It's worth a repeat performance:

KERRY O'BRIEN, PRESENTER: Time for John Clarke and Bryan Dawe with a few reflections on Europe's financial woes.

BRYAN DAWE: Your name is Roger yes?

JOHN CLARKE: Roger.

BRYAN DAWE: Ah, that's your name?

JOHN CLARKE: Roger.

BRYAN DAWE: Good. And what do you do Roger?

JOHN CLARKE: I'm a financial consultant.

BRYAN DAWE: Ah, financial consultant, eh?

JOHN CLARKE: Roger, yes.

BRYAN DAWE: Terrific and Roger how is business at the moment?

JOHN CLARKE: Not bad thank you. Been a bit quiet lately.

BRYAN DAWE: How do you mean lately?

JOHN CLARKE: Since the war. Been a bit quiet.

BRYAN DAWE: Fair enough. Okay, Roger your special subject tonight is the economies of the European community. Your time starts now. Best of luck.

JOHN CLARKE: Thank you.

BRYAN DAWE: How much does Greece owe, Roger?

JOHN CLARKE: $367 billion.

BRYAN DAWE: Correct. And who do they owe it to?

JOHN CLARKE: Mostly to the other European economies.

BRYAN DAWE: Correct. How much does Ireland owe?

JOHN CLARKE: $865 billion.

BRYAN DAWE: Correct. Who do they owe it to?

JOHN CLARKE: Other European economies mostly.

BRYAN DAWE: Correct. How much does Spain and Italy owe?

JOHN CLARKE: $1 trillion each.

BRYAN DAWE: Correct. Who to?

JOHN CLARKE: Mainly France, Britain and Germany.

BRYAN DAWE: Correct. And how are Germany, France, Britain going Roger?

JOHN CLARKE: Well they're struggling a bit, aren't they?

BRYAN DAWE: Correct. Why?

JOHN CLARKE: Well ‘cause they've lent all the vast amounts of money to other European economies that can't possibly pay them back.

BRYAN DAWE: Correct so what are they go to go have to do?

JOHN CLARKE: They're going to have to bail them out.

BRYAN DAWE: Correct. Where are they getting the money to do that Roger?

JOHN CLARKE: That is a good question. I don't know the answer to that one. (laughs)

BRYAN DAWE: How much does Portugal owe?

JOHN CLARKE: Hang on a minute, what was the answer to that earlier question?

BRYAN DAWE: Just keep answering the questions Roger.

Where is Portugal going to get the money it owes to Germany if Germany can't get back the money that it lent to Italy?

JOHN CLARKE: Just a minute. What was the answer to the previous que-

The question was: How can broke economies lend money to other broke economies who haven't got any money because they can't pay back the money the broke economy lent to the other broke economy and shouldn't have lent it to them in the first place because the broke economy can't pay back?

BRYAN DAWE: You are wasting valuable time Roger. How much money does Spain owe to Italy?

JOHN CLARKE: $41 billion. But where are they going to get it?

BRYAN DAWE: Correct. What does Italy owe to Spain?

JOHN CLARKE: $27 billion but they haven't got it - they're broke.

BRYAN DAWE: Correct. How can they pay each other if neither of them has any money?

JOHN CLARKE: They're going to get a bailout, aren't they?

BRYAN DAWE: Correct. And where is the money coming from for the bailout?

JOHN CLARKE: That is what I'm asking you!

BRYAN DAWE: Correct. Why are people selling the European currency and buying the US dollar?

JOHN CLARKE: Because the US economy is so much stronger than the European economy.

BRYAN DAWE: Correct. Why is that Roger?

JOHN CLARKE: Because it's owned by China.

BRYAN DAWE: Correct and very well done! And after that round you've lost $1 million.

JOHN CLARKE: I've lost $1 million? I thought you said well done!

BRYAN DAWE: Yes well done - you've only lost $1 million. That's an extraordinary performance Roger.

JOHN CLARKE: I've only lost $1 million.

BRYAN DAWE: Very well done.

JOHN CLARKE: That's quite good is it?

BRYAN DAWE: Oh it's excellent.

JOHN CLARKE: Sell everything immediately. Quickly!

KERRY O'BRIEN: I think it's called laughing as you sink.

'The Best Option Is An Orderly Default': Roubini On Greece

Found in today's Financial Times:

It is time to recognise that Greece is not just suffering from a liquidity crisis; it is facing an insolvency crisis too. Rating agencies have started to downgrade its public debt to junk level, while spreads on Greek sovereign bonds last week spiked to new highs. The €110bn bail-out agreed by the European Union and the International Monetary Fund in May only delays the inevitable default and risks making it disorderly when it comes. Instead, an orderly restructuring of Greece’s public debt is needed now.

The austerity measures to which Greece signed up as a condition of its bail-out require a draconian fiscal adjustment of 10 per cent of gross domestic product. This would prolong the country’s recession and still leave it with a public debt-to-GDP ratio of 148 per cent by 2016. At this level, even a small shock is likely to trigger a further debt crisis. Sharp austerity may be needed – as agreed by the Group of 20 over the weekend – to stabilise debt-to-GDP ratios by 2016 in advanced economies; but for Greece such “stabilisation” would be at levels that are unsustainable.

Compare Greece today with Argentina in 1998-2001, a crisis that culminated in a disorderly default. Argentina’s fiscal deficit at the onset was 3 per cent of GDP; Greece’s is 13.6 per cent. Argentina’s public debt was 50 per cent of GDP; Greece’s is 115 per cent and rising. Argentina had a current account deficit of 2 per cent of GDP; Greece’s is now 10 per cent. If Argentina was insolvent, Greece is insolvent to the power of two or three.

And that's just the beginning of his article!

Again, it's about the culture: How long has this day been coming? How many attempts have been made to stave it off, in hopes that somehow the problem would just go away?
How many trips to the brink, followed by announcements by The People In Charge Of Such Things that all is well, move on, nothing to see here...

Qatar is being called in to hoover up cash for an equity stake. That'll fix it, no worries...

It will take at least a decade to clean up this mess, but the first step in the process will have to be truth-telling: The present situation is unsustainable, and a sober solution will have to be found. No more pretending, no more delays, no more press releases. For the sake of our grandchildren, let's clean this mess up.

One Reason The Greek Government Is Broke

There's a lot of wealth in Greece, and very little tax collection. With some outrageous percentage of the workforce on the government payroll, that creates a real 'doughnut hole', both culturally and fiscally.

Instead of dealing with the real problems, like governmental corruption and trade unions, the government chose to live on borrowed money. The wealthy (and/or productive) parts of the society turned toward an underground economy life. One can only assume a great deal of wealth has been off-shored, to a stable place like Switzerland, where the government is prohibited from living beyond its means.


From the New York Times:

Various studies have concluded that Greece’s shadow economy represented 20 to 30 percent of its gross domestic product. Friedrich Schneider, the chairman of the economics department at Johannes Kepler University of Linz, studies Europe’s shadow economies; he said that Greece’s was at 25 percent last year and estimated that it would rise to 25.2 percent in 2010. For comparison, the United States’ was put at 7.8 percent.

Hmmmm....the 7.8% figure seems low, from observation of life in these parts.

The entire article is an interesting read, demonstrating how the economy expresses the virtues and vices of the underlying culture.

Apparently, No One Learned One Damned Thing: The Tin Cup Approach To Life

Jesse shared this nugget earlier this evening from Bloomberg.

Ya'll remember OldSouth quoting that bizarre interview with the German finance minister last week?

The one where he admitted 'We don't really know who holds all that Greek debt, and how much is held by whom.'?

You know, that one!

Apparently, the domesticated feline mammalian unit has escaped the portable burlap transportation unit.

JPMorgan’s exposure to the five so-called PIIGS countries is $36.3 billion, equating to 28 percent of the firm’s Tier-1 capital, a measure of financial strength, Wells Fargo analysts including Matthew Burnell wrote today. Morgan Stanley holds $32.4 billion of debt in the region, which equates to 69 percent of its Tier 1 capital, Burnell wrote. 

Now, really, OS is not in the habit of cursing in print, but this one deserves a rousing:

Well, Shhhheeeeeeeuuuuuuuttttt!!

It's so satisfying to say that sometimes, releasing all that air, spittle, frustration and utter disbelief in one extended dipthong.

What sort of moron places 36 billion dollars on the table on: 'I'm gonna buy me a bunch of debt instruments from those paragons of progress and capitalist free markets, Greece and Portugal.'

'OK, spin that there roulette wheel, Bubba! What could go wrong?'

In other words, not one damn thing was learned in the Great Meltdown of 2008, except that no matter how bad the screw-up, Uncle Sam will shovel in enough money to make everything all right.

OS saw a rerun of the classic movie 'Tin Cup' last night. The final ten minutes is almost unbearably painful to watch, which is one reason it is such a great flick. OS was struck by how wonderfully the screenwriters did their job. That 'focal point moment of truth' happens before the carnage begins. 'Tin Cup' Roy McAvoy, totally amped up on his own ego, begins ranting about 'his moment of immortality' as he is about to risk his whole life on a golf shot that has maybe a 10% chance of success. He is Don Quixote at the windmill. His Sancho Panza of a caddy, played by Cheech Marin, totally loses patience and shouts: 'Homes, you don't need your immortality! You need your seven-iron! Lay the ball up!'

Of course, reason did not rule, and that final painful ten minutes proceeds.

Romeo the caddy, the eternal Sancho Panza, stands on the 18th fairway with his friend who has spent his life snatching disaster from the jaws of success, pleading with him to act sanely at least once in his benighted existence. Play the seven iron, reduce your risk, win the US Open. Think of all the people who have invested so much of themselves in you. Play the seven-iron!

Here in the small towns and neighborhoods of America, we don't ask for much from the Great and Good, really. Just that they not act like Tin Cup McAvoy.

We wish they would locate the seven-iron in the bag. Before they blow themselves, us, and everything around them to kingdom come.

German Finance Minister Wolfgang Schäuble: Thrust, Parry, Evade, Repeat

Der Spiegel  interviewed the Finance Minister last week, who seemed anxious to reassure the readers that 'No, we aren't going to bail Greece out', while assuring Greece that it wouldn't be allowed to fail.

It sounded like a few pages out of a John LeCarre novel. Bold emphases supplied by OS, because they bear reading. This guy is worried, and isn't telling half of what his fears might be.


SPIEGEL: Let's talk about Greece and the euro crisis. In 1992, a prominent member of Germany's center-right Christian Democratic Union, to which you belong, made the following promise to German citizens: "If a country accumulates high deficits as a result of its own behavior, neither the (European) Community nor a member state is obligated to help that country." Do you know who said that?

Schäuble: A lot of people could have said that.

SPIEGEL: It was the current German president, Horst Köhler, who negotiated the terms of the European Monetary Union (EMU) at the time, in his capacity as a senior official in the German Finance Ministry. Does the sentence still apply today?

Schäuble: I'm a firm believer in the monetary union. At the time, I felt exactly the same way as the current president. The only problem is that the world has changed. The capital market has become globalized to a degree that we couldn't have imagined at the time. And we have experienced a financial crisis from which we in Europe must draw a clear lesson: We cannot allow the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers.

SPIEGEL: You are exaggerating. In past years, it's happened again and again that a country couldn't pay its debts, and yet that hasn't led to a collapse of the global financial system. Why should this be different in Greece's case?

Schäuble: Because Greece is a member of the European monetary union. Greece's debts are all denominated in euros, but it isn't clear who holds how much of those debts. For that reason, the consequences of a national bankruptcy would be incalculable. Greece is just as systemically important as a major bank.

Is that the phone we hear ringing at the Fed and Treasury?


But wait, there's more!


SPIEGEL: That's not how German citizens have understood the monetary union. They were assured that the euro would be as stable as the German mark. Now their tax money is going to a country in which a quarter of the population works in the public sector and pensions are often higher than salaries. Is this the way to boost confidence in the euro?

Schäuble: I would caution against fueling cheap populism. First of all, every German who has spent a vacation in Greece knows that the standard of living there isn't higher than it is in Germany. Second, Greece is paying a high price for European assistance.

SPIEGEL: Nevertheless, for months the German government was vehemently opposed to government bailouts for Greece. Why did you give in and agree to the EU rescue plan that was recently hammered out and which will involve Germany forking out €8 billion ($10.7 billion) if Greece goes belly up?

Schäuble: We didn't give in. We have always said that before we talk about assistance, Greece has to do its homework first. Meanwhile, the Greek government has approved a credible austerity program that involves serious cutbacks for its citizens, and it even had to step up those measures recently. This is why the German government is now prepared to take on responsibility at the European level.

SPIEGEL: We understood the chancellor's words differently at the time.

Schäuble: That must be your interpretation.

Not even John LeCarre can make this sort of stuff up...and the US is headed in the same direction with its spending.

Once again, the questions arise: Who bails us out in ten years? A grateful Europe? 

Do the people at the helm in Washington understand? Do they intend this?

It's wall-to-wall Ivy League degrees in the upper reaches of our government. It isn't like they are not intellectually adept.

Athens, Alabama/Ohio/Georgia/and Indiana To The Rescue: We May Just Have Bailed Out Greece

Denninger is apoplectic, more than usual.

Follow the link, and see what raised his blood pressure.

OS speculated on this last week, and grins quietly, if grimly, knowing he may have been prescient.

Gotta go. Work calls.

Chin-straps on, and keep yoh' sense of humor. We aaaaalllll gonna need one heah soon.

The Greek Reverse Swan-Dive: Interest Rates Spiking On Greek Debt

Well, the fabulous graph posted on Calculated Risk won't come visit his page, but OS did find an image in the files that evokes the situation. The little 'There, I Fixed It' mark in the corner makes it all the better.

Now, ThePeopleInChargeOfSuchThings assure us there is no need for alarm. And, therefore, it must follow that we should all relax and feel assured.

After all, a couple of years ago, Hank Paulson asked for authority to bail out Fannie and Freddie, but he was sure he'd never actually have to do anything radical like that. That turned out ok, didn't it?.....Didn't it?

OS wonders if they are all so unruffled because they know the taxpayers in places like Athens, Georgia; and Athens, Alabama; and Nashville('The Athens of the South') Tennessee; and Athens, Ohio; and even Athens, Indiana, have already been placed on the hook for Athens, Greece.

ThePeopleInChargeOfSuchThings have just been too occupied keeping everyone else calm, and haven't gotten around to telling them...

Pshaw--they won't mind sending the Greeks a spare fifty billion, just to keep their welfare state in operation one more year. It'll all work out....won't it?

Three Ugly Options: Greece, Europe, And Folks Here In The USA

This thing in Greece just won't go away.

Simon Johnson at Baseline Scenario weighs in. OS takes him seriously, given the man's resume, including time at the helm of the World Bank. Not another angry guy living in the basement of mom's house, definitely.

Long story short:

1. Nobody does anything, and Europe comes unwound.

2. The US rides to the rescue on the backs of its taxpayers, and does stuff that makes the TARP look like small potatoes.

3. The politicians in Greece actually man up, slash the spending, and do the right thing. It's really ugly for a while, but everyone survives, perhaps wiser for the experience.

Well, number 3 is not in the cards. The clowns who created the problem are still in charge. Courage is not their strong suit.

Number 1 is unacceptable, since the last time Europe came unwound, we all ended up with Hitler, Stalin and Mussolini. That turned out well!

So, that leaves us contemplating Door Number Two, to quote the old TV game show...

OS scratches his gray head and wonders: Since we're now spending money like Greece has been for years, who rides to our rescue in 2022? A grateful Europe?

The Millenial Business Plan: Secretly Insure Your Neighbor's House, Then Burn That Sucker Down

This bit of insight from the New York Times:  The banks that helped Greece hide its debts also bet that it would default on the debts they helped hide.

As one insider describes it:  Imagine you are able to take out fire insurance on your neighbor's house.  It gives you profound incentive to burn it down at some point in the future.

Damn! I wish I'da thought of that one! I wuz raised to think that sort of behavior was, well, fraudulent and harmful to my neighbors. Sunday School teachers kept drilling that 'Golden Rule' thang into my head. Little did I suspect, it's actually a business plan! And it works! And it's legal!

Damn!

Invest in premiums, gasoline, and matches...all you need is a compliant insurance agent (with whom you share the proceeds). Write the policy, pay the premiums, bide your time, wait until the owner is on vacation.

Hold a house barbecue.

Collect the payoff.

Now, in the spirit of Bill (It's the economy, stupid!) Clinton, we'll just waive any discussion of ethics.

Ethics, Shmethics. It's about making money, honey.

(Of course, this makes me wonder if someone's insured MY house! Maybe I should put off that vacation, after all...)