Waiting For An Opportunity As Stalled Greek Bank Recapitalization Delays The Inevitable

by: George Kesarios

For those who don't know what an economy feels like with 21% unemployment, believe me- it's better you don't know.

The rate of suicides in Greece has skyrocketed. Almost all financially related and most don't even get reported in the press anymore. A while ago a 45-year old women jumped from her third story balcony near my house. Usually this kind of stuff gets press coverage, but not anymore.

Suicide simply doesn't sell anymore. How many times can one hear of someone killing himself? Recent data shows that about 4-5 people commit suicide on a daily basis. After a point, it's probably better that it does not get reported because it depresses people.

Having said that, when a 77-year old pensioner shoots himself near the Parliament building in Syntagma Square (a few days ago), then it's front page news. And not just in Greece but all over the world. Imagine if someone killed himself in front of the White House.

The once high flying Kolonaki district in Athens (where in order to get a lease you had to pay the previous owner of the lease through the nose) is high flying no more. Stores are empty as are the streets. And for the first time ever, there are vacant stores available. Also for the first time ever, you can get a first class seat in one of the square's fine cafes without getting up in the morning to fight for it.

Even the price of coffee has been reduced. My wife found a coffee shop where a Freddo Cappuccino costs 1 euro or $1.30 (unheard of several months ago).

Asset deflation is the most interesting. Besides the fact that listed companies are trading for pennies to their real assets, the real estate market has totally collapsed. There are simply no buyers, except for those who have cash. Banks will not give you a mortgage no matter how much money you put down.

Gone are the days when banks were giving out mortgages of 120% of the value of the underlying asset. Oh yes, recourse has not saved the banks either. All those who think that recourse loans means that banks will get their money back, simply don't understand that debts that can be repaid either have to be written down or inflated away. And I don't see any inflation (yet anyway).

Just about everywhere you turn and ask, people are simply not making payments on anything. Be it credit cards, mortgages or other loans, everyone seems to have magically stopped making payments. If one can give this behavior a name, I would have to call it nationwide payment default. Banks have so far adjusted the payment plans for 800,000 of their customers. I have lost track of the NPL numbers that the banks report, but they were somewhere along the lines of 15% last time I checked. Whatever the real number is, I am sure it is not the reported number.

Construction spending is down. No one, with a few exceptions, is building anything anymore. The unsold stock of new homes is about 120,000 and god knows how many older houses are on the market.

Anyone who has cash can, for the first time, get a real bargain in some of the high flying Athenian suburbs. In fact, the prices I see listed are just to good to be true. But when I talked to a real-estate agent, he indeed confirmed some of the listings I read on a local online real-estate site.

The banking system is totally insolvent. Instead of recapitalizing the banking system 12 months ago (if not earlier), the government has stalled because they can't find a way to prevent the current bank stock holders from being diluted to death. The banking lobby in Greece more or less controls the country and they don't want to lose their shirts. This delay in recapitalizing the banking system has put even greater pressure on the economy.

But most bank shares are already penny stocks. Capital increases will not save them. Greece needs a second haircut and bank losses will continue. What is the point of contributing to the capital increases, if debt write downs will continue?

If bank recapitalization is not sufficient to make up for lost equity and provide the banks sufficient capital, neither the banking system nor the economy will function correctly. Leave it up to European politicians to do the wrong thing one more time. For I have a feeling that the capital needed is less than what Europeans want to put up.

The question is, what will be the catalyst for a turnaround? There are a number of things. Greece does indeed have many aces under its sleeve. Among other things, Greece has more PHD graduates, as a percentage of the population, than any other European country. Tourism is also an ace and there is much fat that can be trimmed off from government spending. However Greece also needs to change and overhaul the entire public sector.

For the time being however, corruption and government mismanagement will continue preventing market forces from gaining economic traction, thus kick-starting the economy. And for a while longer, populists will continue to promise pie in the sky, knowing very well they can not deliver the goods.

But Greece will change only because there is no other option. Either willfully or under the threat of total financial chaos, change will come and so will opportunity. I just hope it happens in my lifetime.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.