Greek Solution - UPDATE

This so obvious, that it won't happen, but I can't believe it took me until today to figure it out. The whole reason for the crisis is that the Greeks can't slowly default by monetizing their debt (i.e. devaluing their currency thereby inducing inflation) the traditional deadbeat and third world way out of this kind of jam. This is because they use the euro as their currency and can't print more. Further, their deficit and debt ratios exceed the thresholds imposed by the treaty that admitted them to the union. Since they lied about their finances, violating the treaty, the EU should just expel them. Then they can do whatever they like. Since that will also put them outside the EU, it will also staunch the bleeding in the EU markets. Further, it will have a salutary effect on any other member nations not getting their act together.

Of course, this won't happen, because the whole world has adopted the paradigm of TBTF.

UPDATE

The Wall Street Journal, (the nation's real newspaper of record, IMHO) addresses the difficulties of my plan. But at least it shows that it is being considered.

From a legal perspective, there is no mechanism to force a country out of the currency area, European Central Bank legal counsel Phoebus Athanassiou argued in a December 2009 working paper. And while the Lisbon Treaty introduced a means for states voluntarily to withdraw from the European Union, it was silent on leaving the euro. Ultimately, that means the only way a country could leave the euro would be to quit the EU, too, according to Mr. Athanassiou. That raises the stakes far higher, since it would affect the rights and obligations of citizens and companies.

Practically, too, leaving the euro would be extremely difficult. Beyond the huge logistical problems in introducing a new currency and untangling the national central bank from the Euro system, a euro exit followed by a devaluation would likely leave a country with a mountain of unserviceable euro-denominated debt, leading to major legal wrangles, mass personal bankruptcies and huge losses for creditors.

Doesn't change my position, but it does show what it would take. Exit question, will the Greeks themselves decide this their best option?

Stupid Headline of the Week

This one is too easy:

Euro market meltdown resumes despite Greek deal

How about because of the Greek bailout? How about what did you expect? The Greeks have shown neither the willingness nor the ability to figure out how to deal with their debts and structural deficit. That 110 billion euro promised? Might as well flush it. And the reason the euro market is melting down? Clearly more bailouts are on the way; in for a dime, in for a euro.

The reporting in the linked headlines isn't near as bad as the editorial writing that came up with the headline. Some tidbits:

In Athens, striking public workers challenged Greece's 110 billion euro ($146.5 billion) bailout-for-austerity deal, starting a 48-hour national strike that shut down ministries, tax offices, schools, hospitals and public services.

While I can get behind the whole tax office shut down; you have to ask yourselves, are these people insane? Where do those public workers think their salaries come from? I guess they don't think. Further, just because there was a bailout, don't think default isn't in the cards anyway. Look who's been signed on to help the Greeks:

News that Greece has appointed debt restructuring specialists Lazard to provide "general financial advice" fueled speculation that some form of orderly rescheduling or payment moratorium may be likely, despite vehement official denials.

Finance Minister George Papaconstantinou told Reuters after news of the Lazard hire: "Any form of debt restructuring is out of the question."

The denials are certainly convincing to me.

And if you thought this was an amusing little comeuppance for uppity euro-trash socialists, guess who's also footing the bill. From W.C.'s column today, quoting John Mauldin of Investor's Insight:

Let me start this week's Outside the Box by venting a little anger. It now looks like almost 30% of the Greek financing will come from the IMF, rather than just a small portion. And since 40% of the IMF is funded by US taxpayers, and that debt will be JUNIOR to current bond holders (if the rumors are true) I can't tell you how outraged that makes me.

To quote W.C., welcome to bailout planet baby.

Here is the picture accompanying the article:


Exit question, why a sign in English and why the commie hammer and sickle? OK that's two questions, but somebody help me out.

Making it Worse in Greece

KT has two updates, here and here, on the Greek bailout situation. Greek unions' violent protests cut off tourists from their hotels. KT points out that one of Greece' main economic pillars is tourism. He also points out the inevitable failure of the bailout as the the Greeks haven't really shown the will to make the changes needed to mend their balance sheets. Further, they've been lying so long, who knows if the approximately $150 billion will be enough.

Tim Cavanaugh at Reason Hit & Run, shows how the bailout is already making things worse. A few of the juicier quotes:

Second, while German Chancellor Angela Merkel is taking credit for bringing in International Monetary Fund support and forcing some tougher fiscal-cleanup conditions on Greece, the bailout does not address the counterproductive elements in Greece's own so-called austerity package, including currency controls and cash-transaction limitations that will only slow the country's economy.
...
Fifth, Marshall's [an Asset Manager] doubts are well founded. As they have shown throughout this crisis, Greece's strong and ancient socialist institutions can only respond to market discipline with violence.

Compare this video of lefty Greek protests with any Tea Party event:

Puttin' a Damper on Those Bailout Requests

President Obama, in a move that I fully applaud, and was anticipated by George Will last year (see last paragraph of link), capped executive pay at firms receiving bail out money at a paltry half million per year. Why do I applaud such a blatantly anti-capitalist piece of symbolism and political theater? Well, I think the government is going to have a hard time giving away all that TARP jack if it hurts executive's personal bottom line. (Click here to apply yourself, if you think you can stand limiting your salary.)

Dean also saw the writing on this particular wall, commenting on how the mere threat of losing the corporate jet was already dissuading executives from porking out on federal largesse. How are they going to react to the loss of 7 or 8 figures off their personal paychecks. Some of these guys personal mortgages probably top the half million number.

As an aside, I had the good fortune to listen to Marshal Goldsmith yesterday, a great speaker. He discussed the motivating power of money and how he uses it in his executive coaching practice. He remarked that his client base consisted primarily of rich old men. "You would think they wouldn't mind losing small amounts of money, right? Well, you would be WRONG." He uses small fines in the $5 to $20 dollar per incident to get these executives to change bad behavior. If $5 bucks a crack can motivate investment bankers and Fortune 500 CEOs, what you think Obama's plan is going to do?

So good luck to the Prez and the new tax collector-in-chief in disbursing the rest of the bailout money. If you'll excuse me now, I've got an application to submit; I think I can squeak by on the $500K and the line seems a lot shorter now.

What's a matta with you's guys?

After choking down $45 billion of jack from Washington loan shark, Sammy the Nose (as in "Yo Uncle Sammy nose what's best what's best for you's guys health.") The not so street-smart suits at Citibank have changed their tune about giving bankruptcy judges more latitude in resetting the terms of payment of home mortgages. No connection to their new best friend? Dean has rescued my blog with the full story.

Light blogging tonight as I finish two days of training in "best practices for service management" and have two short papers to write for an on line course in Information Resources Management.

What Happened to This Guy? UPDATED

Back in February, after John McCain clinched the Republican nomination, I wrote approvingly of his efforts to reach out to conservatives and by extension, libertarians. I was specifically delighted by this rhetorical flourish:

"...I share with you that most basic of conservative principles: that liberty is a right conferred by our Creator, not by governments, and that the proper object of justice and the rule of law in our country is not to aggregate power to the state but to protect the liberty and property of its citizens. And like you, I understand, as Edmund Burke observed, that whenever a separation is made between liberty and justice, neither . . . is safe."

There was more:

"I believe today, as I believed twenty-five years ago, in small government; fiscal discipline; low taxes; a strong defense, judges who enforce, and not make, our laws; the social values that are the true source of our strength; and, generally, the steadfast defense of our rights to life, liberty and the pursuit of happiness, which I have defended my entire career as God-given to the born and unborn."

When the credit crunch, which became a manufactured crisis, hit, John McCain's instincts were dead on. He initially opposed the bail out of AIG. He announced the suspension of the campaign to go to Washington to deal with the crisis. I had real hope that he was going to again out-maneuver Obama and propose a better, less intrusive, less costly solution to the problem at hand. It would have simultaneously played to his strengths, small-government conservative and maverick and would have properly framed the debate. But in the end, he offered nothing different from Bush or Obama and it was game over. I am not sure if it was timidity or lack of confidence in his own judgement on economic issues. Too bad, because the nation is going to suffer for it.

UDPATE:

Apparently, Senator Jim DeMint (R-SC) read my blog and agrees that McCain's support of the bailout was at least partly responsible for his loss. From CNN:

'And of course, his embrace of the bailout right before the election was probably the nail in our coffin this last election."

Dang, I may have to retract the whole post.