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Tom Armistead
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I'm a well-informed retail investor and post on SA in order to expose my thought process to critical examination and comment from readers. It makes me a better investor. I'm particularly proud of bullish macro articles posted in 2009 and later, in which I presented ideas that encouraged me to... More
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  • Greece Being Looted 12 comments
    Feb 10, 2012 9:09 AM
    I wish somebody would explain to me how imposing a 22% reduction in the minimum wage will enable the Greek government to pay its debts. Or why selling off state assets at fire sale prices will restore the country's Depression ravaged economy.

    The smart money left Greece early in 2010, buying homes in expensive areas of London, to be near "the City." Nobody who could find a way to evade taxes has ever paid them, and the tax collectors themselves have no intention of collecting them.

    Papandreou, when he was in power, was the third generation of his family to hold that post. That tips it off, the place has been run by the same people for a century, looting as they went, until it's bankrupt. It's like anything else of its kind, you can't find the money and there will be no restitution.

    It's not really about paying the debts - it's about enforcing the rules of neo-liberal economics - the rich must get richer and the poor must get poorer. Hence the demand for a reduction in the minimum wage, and for the final looting of state assets. Of course Goldman Sachs helped set the stage, long ago, with some artful transactions. What else is new?

    If the Greek people decide to walk away from the whole mess I support them. However, I would suggest they get a completely new set of leaders. Their leaders are greatly to blame.

    As investors, this is similar to driving past an extremely ugly accident on the throughway. A small car has been totally flattened, while the tractor trailer that caused the damage is hardly dented. The blue lights are flashing, the flares and traffic cones, the ambulances and fire trucks, etc. Traffic inches past, slowed to a crawl while the occupants of the passing vehicles gawk at the carnage.

    Soon enought we will pass the wreckage, get back up to speed, and forget about the dangers that always lurk on the highway. It always happens to someone else, and life goes on.

    So another small country has been looted by its own leaders and leading citizens. Of course the poor will need to get poorer, until the required results are achieved, that there is no minimum wage, as is the situation in Germany, and the hewers of wood and drawers of water can work for 50 cents an hour, if one has to pay them at all.

    Greece can be reorganized along historical lines, with the Germans as the virtuous, disciplined Spartans, and the remaining Greek citizens relegated to the role of helots.

    And the wealthy can cruise the sunlit Mediterranean on their yachts, the wine dark sea, the rosy fingered dawn, life as it should be.

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Comments (12)
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  • JeffreyLangBoyd
    , contributor
    Comments (663) | Send Message
     
    Taking the position that a lower minimum wage is about making the rich richer is a very difficult argument to support. It means that those who need a lower wage in order to break into the labor markets can obtain the dignity of work and develop skills to help them advance. It means that the Greek businesses that are losing money and not able to pay their debts might actually have a chance of prospering and growing.

     

    Sitting around collecting state money is not a recipe for long-term health of the individual or society. That doesn't mean I think the Greeks shouldn't consider defaulting and telling the rest of Europe we will run things the way we want to but they shouldn't expect the rest of Europe to continue loaning them money if that is the route they choose.
    10 Feb 2012, 10:39 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (5424) | Send Message
     
    Author’s reply » JLB,

     

    You really need to take a trip to China, go inside some of these sweatshops where the workers are working 60 hour weeks and living in company housing, dorms, 6 to a room.

     

    Inflicting similar misery on workers elsewhere won't solve the problem. Social unrest in China will eventually solve it, those people are so accustomed to repression there is no way to know how much they will put up with.
    10 Feb 2012, 11:17 AM Reply Like
  • JeffreyLangBoyd
    , contributor
    Comments (663) | Send Message
     
    Social unrest always has to be considered and if the rest of Europe chooses to buy social stability in Greece that is certainly o.k. with me but it might very well be unfortunate for Greece in the long-run.

     

    Oh and I have been to China and while I have not visited any of what most people would consider sweat shops, I've seen how the people live. I also lived in low-income housing as a child, worked for wages that were below the minimum wage and let me tell you, it wasn't so bad as I was healthy and had the respect and support of those around me.
    10 Feb 2012, 11:50 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (5424) | Send Message
     
    Author’s reply » Congratulations, there are always a few who have the strength, resources and luck to do very well from a difficult starting point in life. Many of them see very little problem with income inequality, it seems to be part of what makes them successful.

     

    From a long term historical view income inequality has been a fact of life, it seems that the inherent differences of ability, coupled with the tendency to exploit the weakness of others, produces the same result. I'm sure the Pharoah thought he was a god and was doing a good job for his people, building pyramids and so on and so forth.

     

    Eventually we arrive at the bust of Ozymandias: "look upon my works ye mighty, and despair."

     

    Meanwhile I dislike income inequality, on the scale perpetrated in the present era, and I don't see any economic rationale for it. The problem isn't that US or Greek employees are overpaid, the problem is, the Chinese are underpaid. They have this bizarre blend of communism and crony capitalism, it achieves its purpose very well, at the expense of dragging the rest of the global population into the race to the bottom.

     

    Soon enough robots and computers will be producing more than the world can consume, the government will have to subsidize consumption to keep the wheels turning. It won't be possible for half the population to find work, in the sense we have it today. Then more than now it will be about distribution. The goods get produced, then some sort of hierarchy of merit has to be devised, who gets what and why?
    10 Feb 2012, 12:44 PM Reply Like
  • expatsp
    , contributor
    Comments (212) | Send Message
     
    I think the lower minimum wage is about making Greece more competitive internationally, via deflation, so it can export more and starting earning hard currency to pay back the German banks.

     

    Germany accepting more inflation would be the easier way to do it, or just Greece leaving the euro and devaluing. At least officially, those don't seem to be on the agenda right now, but as I think Herbert Stein said, "If something can't go on forever, it won't."
    10 Feb 2012, 11:55 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (5424) | Send Message
     
    Author’s reply » expatsp,

     

    I'm not sure why the Greek and Eurozone leaders have tried to keep up the pretense as long as they have. Presumably they both had a stake in keeping the game going.

     

    For Germany, that stake seems to be their desire to export their approach to life and economics, or to conquer by financial means what they couldn't achieve by military might in WWII. It's about will to power.

     

    The Greek leadership, its pretty obvious, they wanted to keep the game going as long as possible, so they could stay belly up to the trough.

     

    Frankly I think the Greeks should leave the Euro, without giving Germany so much a plugged drachma. Then they should try, convict and hang their leaders, and start over.

     

    10 Feb 2012, 12:54 PM Reply Like
  • FrankBn
    , contributor
    Comments (30) | Send Message
     
    Hi Tom, again an article of yours showing a deep notion for humanity - and commendable as that in this otherwise russian freeze environment.

     

    Nevertheless I think you over-interprete German actions, when saying we want to achieve now what we didn't achieve with WWII. I'd say, Merkel just wants to put a stop on an otherwise eternal money transfer to Greece, where btw not only Germany would have to pay, but also e.g. Slowenia, where people by no means conceded themselves the kind of (foreign-payed) social welfare that Greece did.

     

    And even if I follow your conclusion, that the Greece 99% are robbed by their 1%, this can't be changed by EU just going on to pay - it can only be changed by the Greece 99%. And yes, with Germany still being a halfway functioning democracy, Merkel has to think about re-elections - and I don't know too many Germans who like seeing their flag burned and being yelled at as Nazi, just because we don't like to unconditionally and eternally finance an obviously not working business model of another country.

     

    And while writing, I was long time undecided wrt minimum wages, but from what I heard from those industries here that have it (more than 50% of employees), it works both for employers and employees, since it simply stops the race to the bottom, seemingly w/o the often mentioned effect of job destruction - assuming an apt minimum wage. But since no one nowadays pays for us in EU, we have to find our own equilibrium - and that's where comparison to Greece ends.

     

    Thanks for reading, Frank
    11 Feb 2012, 12:58 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (5424) | Send Message
     
    Author’s reply » Frank,

     

    Thanks for a thoughtful and measured comment. I apologize for the remarks directed at German national character and motivations in their response to this financial crisis. I'm sure there are more constructive and useful ways to think about resolving this crisis.

     

    At the same time, history has lessons to teach, if we can get past national and/or ethnic animosities and simply follow the cause and effect of economic, political and financial decisions.

     

    Interconnectedness and interdependence is a bummer. I'm sitting here in the US of A, with some nice investments that will prosper if the Greeks and the Eurozone will just deal with their problems in a way that averts a financial meltdown. I get frustrated.

     

    Tom
    11 Feb 2012, 07:38 AM Reply Like
  • FrankBn
    , contributor
    Comments (30) | Send Message
     
    Hi Tom, thanks for the answer - and sorry, if I left the impression of national animosity.
    One of my best friends is born from Greece and since we didn't leave out that topic from our discussions, I hope to still have an educated view.
    As obvious as it is from few thousand miles away that whatever group of people just can't expect others to pay for their way of life eternally, as obvious it is too that the process of accommodation won't happen without some excess and some bashing for the messenger.
    My point of view is simply, that given the last events it might be a good time for all related parties to just mind their own business - no flag-burning and Nazi-comparisons required while sorting out interdependencies.
    I'll be fine to take whatever that might mean for us in DE through our over-leveraged banking system and whatever additional heads that Hydra might rear. We also had our chance in DE to fix that in time and we didn't.
    And if it helps - I share your frustration, not sure at all how to save my earnings through the pending times of deleveraging and probably no better means than staying informed.
    Frank
    12 Feb 2012, 02:20 PM Reply Like
  • bbarberayr
    , contributor
    Comments (156) | Send Message
     
    Take a look at this chart:
    http://bit.ly/w1xA6L

     

    When Greece joined the Euro in 200, their per capita GDP was US $11,500. In 2010, it was US $27,000, and that was down from almost US $31,000 in 2008.

     

    Leave the Euro and I wouldn't be surprised to be back the $11,500. I don't see that the Greek economy has done a lot of restructuring the last 12 years to make it more competitive.

     

    Sure, you could go to the drachma, and keep the # of drachmas paid the same, and this may be more politically tenable, but the GDP in US$ would fall dramatically.

     

    I really don't think they have a choice but to stay in the Euro and their economy will be modernized almost in spite of Greece.

     

    I think it will work and the reason I say that is because Canada did the same thing when we signed the US Free Trade Agreement. Canada was relatively underproductive and we paid a lot more for goods due to protective tarriffs. Free trade came in, a lot of US multi-nationals shut small Canadian factories and started exporting to Canada and a lot of people lost jobs. But the economy restructured and built new businesses using our competitive advantages (mining , telecom over wide areas, insurance, energy, etc.) and Canada came out much further ahead and when the resource boom started in 2001 Canada was well prepared to take advantage of it. The same needs to happen in Greece - restructure old businesses, get rid of unnecessary regulation, reduce government, focus on competitive advantages like shipping, tourism, culture, etc.

     

    Take a look at the following for a good read on how bad things are in Greece:

     

    http://bit.ly/xgXHJ0
    13 Feb 2012, 08:51 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (5424) | Send Message
     
    Author’s reply » bb,

     

    I think we need to draw a distinction between modernizing an economy, or getting the appropriate infrastructure in place, and having other nations dictate social policies regarding redistribution/allocation of income/rewards that have been agreed to by the people involved.

     

    In my experience any form of pension or social security will be abused unless very carefully monitored. In the US, it's not uncommon for municipal employees to receive an unwarranted promotion for their last year, in order to pad their pension. Social Security disability payments here are not very large, but there is an industry among lawyers getting people into the system. I got a flyer from a well-known and respected firm in our town, specifically looking for that kind of business.

     

    In Greece hairdressers get to retire at 50 (or is it 55?) due to the exposure to chemicals. So they retire and work under the table.

     

    Minimum wage is a different issue. Absent a minimum wage, you get a race to the bottom, ultimately winding up with working poor, and idle wealthy ones. Regretfully about 5% of the population is excess at any one time, and once you drop the support, wages go in the toilet.

     

    Nobody in Greece has been paying taxes, I guess you could say the agreement was a pretense, those at the lower end of the scale were given promises of security that couldn't be fulfilled, while those at the upper end of the scale evaded their taxes. You know and I know that corruption has to run rampant, the so called "little envelope" in order to get anything done.

     

    I looked at the figures about a year ago, and what I saw was the Greece's nominal tax rates as a % of GDP, and social benefits as a % of GDP, were pretty much in line with the rest of Europe. Somehow that never got traction in reality, and there is money missing, look to the leadership.

     

    Attitudes have changed, I promise you. As a young man, I worked for an insurance company. The oldest underwriter had severe arthritis, and had never learned to do car insurance, all he could do was fire insurance. But he was kept on the job until his normal retirement age. Hours were nine to five, with an hour for lunch, to make up a 40 hour week.

     

    The last place I worked, it was owned by Rockefeller interests, and they elected to go to the so called 98 hourly plan, you still worked 40 hour weeks, but without the paid lunch break, and it consisted of 9 hour days, with a 3 day weekend every 2nd week. After they introduced the plan, I found it was difficult to work the 9 hour days, staring at a computer screen, etc. They had the place open 5 days a week at all times, for the customers. I asked to be accommodated, to work a normal week 8 hours a day, 5 days a week. That was denied, and when it became apparent that I wasn't liking the schedule, my previously acceptable performance, which had earned me two raises, suddenly became cause for reprimand. I walked.

     

    The other issue was, I require a certain amount of exercise, and used the one hour lunch, while it existed, to take a walk. The 98 plan called for a half hour lunch, not adequate to eat a sandwich and also take a walk. So my healthy habits were undermined, in the interest of an arrangement that they felt made things more efficient.

     

    Then at my church back during the last recession, a fellow choir member would come in on Sunday, still exhausted from working unpaid overtime at Cuno, in order to keep his job. The outfit has since been sold to 3M, with great approval of the wonderful job the CEO did there. He gouged my friend and his fellow workers, exploiting their fear of losing jobs. Really praiseworthy.

     

    So the global tendancy is, we are going to permit this type of thing to keep going until we get back to the Triangle Shirtwaist Factory.

     

    So I take a dim view of the deregulation and the wonders of unfettered free enterprise. It was deregulation of the banks that created the Great Financial Crisis. It was toothless regulators, defanged by the ideology of the Bush adminstration, who looked the other way while fraud and excessive risk ran rampant.

     

    Obviously Greece has their own special problem, a complete breakdown of the social contract, all take out, none put in. But there is no reason to hold them up as an example of why workers anywhere and everywhere need to be stripped of their protections, and their example in no way invalidates the need for basic security nets in place for those who are not at the top of the economic heap.
    13 Feb 2012, 09:46 AM Reply Like
  • bbarberayr
    , contributor
    Comments (156) | Send Message
     
    Fair enough Tom - the real problem with Greece is cultural and I agree that it would be better for Greece to fix its own problems. The issue is Greece does not seem to be able to do this (for decades in my understanding), so it being forced upon them. There was an interesting article posted on Seeking Alpha today talking about how their were expecting joining the EU to help get rid of many of these bad behaviours:

     

    http://bit.ly/x9uLEP

     

    Politicians in Greece know their economy is inefficient, know they can't fix it themselves and I wonder if they aren't quietly pleased the the Troika is forcing these changes on them.
    13 Feb 2012, 07:06 PM Reply Like
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