How to explain Greece to a complete idiot / politician

by · 16 comments

October 10, 2011
Bangkok, Thailand

Let’s pretend for a moment that Greece is a human being. I’ll call him George.

George is a hairdresser and makes $40,000 per year. George has limited assets. He has zero savings, no precious metals, and is way underwater on his mortgage. His credit card debt is over $100,000, and his bare minimum living expenses are $45,000 annually, over 10% more than he makes. George’s credit is pitiful, and he cannot obtain any more new loans.

George’s neighbor Hans has a big family. All the kids work hard and contribute to the family savings. Hans sees George’s plight and decides the neighborhood has to stick together; he starts loaning George some money out of his family’s savings, and eventually begins to take on more and more of George’s personal debts.

Many of the other neighbors– Luciano, Seamus, and Juan– are in the same boat as George: drowning in debt with massive personal expenses and no hope to pay them back.

Everyone is looking to Hans for help.  He’s the responsible one in the neighborhood. Now, Hans doesn’t want them all to go bust because he knows it would be bad for the neighborhood property values… but Hans’s children are balking at the prospect of working hard on their newspaper routes just so that George can keep his plasma screen TV.

Very soon, George is going to run out of options and will have to have a difficult conversation with his credit card companies. In the real world, there is no other choice.

In the pretend world of politics, however, European leaders have been able to convince everyone that it’s all under control. Never mind that the whole situation has completely fractured capital markets; traditional valuation metrics have taken a back seat to rumors of secret meetings and loud talk of bailout plans.

Think about it: Dexia passed summer bank stress tests with flying colors. A couple of months later it’s going bust. How can markets function without confidence in balance sheet accuracy? Or whether a government will even be around tomorrow? This is kind of a problem when sovereign debt is the cornerstone of the financial system…

And yet, stock markets worldwide surged today on the news of a European ‘pledge’ to help banks.

Do yourself a favor and stop watching their lips move. These ‘plans’ are nothing more than lies and misdirection. Just like our friend George, a Greek default has to happen.  Politicians can pretend whatever they want, but in the real world where we live, financial deadbeats have no other options.

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2011-10-10
  • Elai

    What is different in the greek sovereign debt crisis vs the 1998 Russian sovereign debt crisis.  The number are about the same in terms in world debt percentages.  Is it all about the Eurozone and 4 other euro countries waiting to do the same, simultaneously? 

    • http://www.facebook.com/internetliving Marco De Veglia

      In this case the big difference is that we have countries with too much debt AND not controlling their currency because they use the Euro. That is differnt from USA, UK and Japan to list the 3 very troubled countries that can monetize debt… for a while. Euro is intrinsically deflationary because it has to remain inside certain parameters: this means that the weight of debt is on the shoulders of the weak and cannot be raised by the strong (notwhitstanding all the chatter about Europe saving the PIIGGS).

      • http://www.michaellockyear.com michael lockyear

        …or to put it simply: Greece cannot print more money.

  • http://pulse.yahoo.com/_PCFEHE5XLOX2QTY2IH5O2PO7QQ Cool

    Hey, I understood this–nice work. But, wait a minute, what does this say about me…

  • http://pulse.yahoo.com/_3FFQPUPI7O26EKCTEL3XM5DKCU DanielK

    This is a good analogy. About the EU politicians pretending that they have it all under control. I would add….only until next time.
    Just wait after this third bailout or restructuring  until Greec’s next
    loan payment or next bond debt service payment is due and they
    again can not make that payment. Then the fall will be from a higher cliff. Tougher austerity measures alone only exacerbate the problem but most Greeks simply are not committed to working hard and doing whatever necessary to solve their problem. Why should they….wen their rich neighbors keep bailing them out?

  • Tony_of_Athens

    Simon,
    Do me a favor and don’t explain things to idiots because you make an idiot of yourself.

    Matters are WAY more complicated than this story which truly is for idiots ONLY.

    We need to get deep into history, economics, politics and human nature before we even try to understand what is happening.

    EU is exactly like Polpris says it is: a functional successor to the Soviet Union. Who designed it and why?

    Just 70 years ago Mr. Hans and Mr. George along with everyone else in the neighborhood were KILLING each other. Mr. Hans took all the gold of Mr. George’s house as a war “loan”. Of course, now that the neighborhood is such a lovely place Mr. George does NOT DARE ask for that gold. Which makes George a pussy and an idiot. And which also makes Hans a cold blooded criminal…

    At the same time, Mr. Hans is bribing Mr. George to buy more and more war ships, submarines, fighter planes and what have you to keep the “balance” with Mr. Mohamed, the naughty kid just down the block…

    Euro is either the creation of idiots or criminals. It is good as things are going well and it was never designed to be sustainable.
    It looks like Mr. Hans has created the euro so ALL savings of Mr. George, Mr. Juan, Mr. Luciano can go under the control of Mr. Hans.

    However, looking back at the huge, devastating, sub-human bloodshed of the two world wars one can hail EU as a giant step forward for mankind.

    Only thing is, perhaps it can take a few hundred years more before it starts getting really human…

    • DoesNotMatter

      Looks like poor Hans simply can’t get a break. No matter what happens, he get’s blamed. Tony of Athens…….you’re Greek right?

  • Forde55

    Absolutely right!

  • Dlg

    In a similar vein a German Friend told me that the Germans feel like they are standing on tiptoes in a sea of effluent just about able to keep their noses and mouth above the surface. Unfortunately the Greeks still think its OK to go waterskiing.

  • http://www.facebook.com/internetliving Marco De Veglia

    In this metaphor you forgot to mention Bob who is the owner of a overpriced (mortgage way higher than the value of the property) home a block away from the neighborough of our European guys. Bob has huge money issues (personal bankrupt but he isn’t filing for it deluding himself he can still get credit) even if he is the local branch bank president. Now he wants Hans’ neighborough get bad so that his real estate can look more attractive for a buyer.

  • Theophilus

    One reason this Greek crisis came as a surprise to some is that the Greeks systematically falsify official government statistics. Not a single number that comes out of Greece is to be believed, including how many hours they say they work. Anyone who has been to Greece has seen the restaurants filling up around noon as the Greeks award themselves three-hour lunches every day. They are the prototype of Mediterranean deadbeats. 42 hour workday? Don’t make me laugh.

  • Charles Wu

    Hi Simon,
     
    Maybe you’re watching too much CNBC or Bloomberg TV?  Or worse yet listening to US politicians blaming Europe for all their ills?
     
    Enough about attacks and blaming Greece and Europe.
     
    Lets focus on the MULTIPLE plasma TVs in each USA household subsidized by the Chinese worker……Also,  lets look at California, NY, Florida…etc  and their fiscal mess.
     
    How about the 14 Trillion dollars owed to rest of world, majority to China?  How will they pay it back?
     
    Would love to see you focus on this more important issue and threat to world economy as the USA is worlds consumer in chief!
     
    Thank you.
     

  • http://twitter.com/STRIANA SANTIAGO

    How to explain Greece to a complete idiot / politician……..George the Greek hairdresser story !!!!!!

  • Julian

    Very nice and neat story – hopefully for more people to understand now…

  • Ozawa

    You are missing the fact that the criminal politicians in Greece are owned by the criminal bankers in France and Germany, along with their criminal buddies in businesses like the weapons trade. Thus, Greece has multiple billions for unneeded weapons, but will “have” to sell off all their good assets for pennies on the dollar to those very same bankers.

    This isn’t that much different from the criminality in the US. One can argue that the masses have been foolish or wasteful, but the gross criminality of the financial class is over the top. So let’s take your example:

    “George is a hairdresser and makes $40,000 per year. George has limited
    assets. He has zero savings, no precious metals, and is way underwater
    on his mortgage. His credit card debt is over $100,000, and his bare
    minimum living expenses are $45,000 annually, over 10% more than he
    makes. George’s credit is pitiful, and he cannot obtain any more new
    loans.”

    The mortgage has been sliced and diced by companies that have violated the state law about maintaining clear title – if they ever had one to begin with. The company that claims to hold his title is way beyond bankrupt, but has been propped up by untold billions in tax money. In addition, it can’t find any of the paperwork, so they aren’t sure if they even own it, but have asked the judge for full title, even though another company says they are the real owners. The credit card debt is at an interest rate that has traditionally been considered to be illegal and immoral, but the US Supreme Court ruled that loansharking is legal when done by Wall Street. George’s credit is pitiful, but far better than all the financial institutions he owes money to, except those institutions control the government and thus can receive practically unlimited free money from the Georges of the land.

  • Anonymous

    Greece: the ECB’s Daily Floggings will Continue until the Greek Economy Recovers By WilliamK. BlackThe European “troika” that has been driving Greece into a deepening depression has just completed an analysis documenting the failure of its policies. The analysis has leaked. Here are its introductory paragraphs. Greece: Debt Sustainability AnalysisOctober 21, 2011“Since the fourth review, the situation in Greece has taken a turn for the worse, with the economy increasingly adjusting through recession and related wage-price channels, rather than through structural reform driven increases in productivity. The authorities have also struggled to meet their policy commitments against these headwinds. For the purpose of the debt sustainability assessment, a revised baseline has been specified, which takes into account the implications of these developments for future growth and for likely policy outcomes. It has been extended through 2030 to fully capture long term growth dynamics, and possible financing implications.The assessment shows that debt will remain high for the entire forecast horizon. While it would decline at a slow rate given heavy official support at low interest rates (through the EFSF [European Financial Stability Facility] as agreed at the July 21 Summit), this trajectory is not robust to a range of shocks. Making debt sustainable will require an ambitious combination of official support and private sector involvement (PSI). Even with much stronger PSI, large official sector support would be needed for an extended period. In this sense, ultimately sustainability depends on the strength of the official sector commitment to Greece.”The leaked memo helps explain why the Troika always lets the periphery twist slowly in the wind even though doing so hurts everyone – if this memo is representative the Troika must be choking to death on its jargon, theoclassical economics dogma, and its propaganda. In plain English, the memo concludes:

    Read the rest here:

    http://neweconomicperspectives.blogspot.com/2011/10/greece-ecbs-daily-floggings-will.html
    —————————-
    Europe’s Non-Solution
    By Marshall Auerback

    Today is supposedly the day where the problems of the euro zone get resolved once and for all. And when have we heard that before? Truth be told, it’s hard to get excited about any of the “solutions” on offer, because they steadfastly refuse to acknowledge that the eurozone’s problem is fundamentally one of flawed financial architecture. The banking “problems” and corresponding “need” for urgent recapitalization, are simply symptoms of that problem. Offering the “cure” of banking recapitalization for a problem which is ultimately one of national solvency (of which the banking crisis is but a symptom) is akin to offering chemotherapy to solve heart disease. Despite the current “thumbs-up” from the markets, the treatment is likely to exacerbate the disease, rather than represent the cure.

    Let’s go back to core principles. We agree that the concern about Portugal, Ireland, Italy, Greece and Spain (PIIGS), indeed ALL other Euronations is justified. But using PIIGS countries as analogues to the US is a result of the failure of deficit critics to understand the differences between the monetary arrangements of sovereign and non-sovereign nations. Greece, Italy, France, and yes, Germany, are all USERS of the euro—not an issuer. In that respect, they are more like California, Massachusetts, indeed, any American state or Canadian province, all of which are users of their respective national government’s dollar.

    Read the rest here:

    http://neweconomicperspectives.blogspot.com/2011/10/europes-non-solution.html#more

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