You are a Banker

In my last post I went on a rant about financial illiteracy in America.  I am particularly angry at how the intellectual elites and the financial establishment actually impede progress in this area.  Another egregious example occurred since that is worth exploring in some detail.  It concerns sloppy statistics generated by incompetent laziness.

Let’s say you are a banker with two loan applications in front of you.  Each has almost exactly the same amount of overall debt.  Do you stop there and determine that each is equally deserving of a loan?  Very dumb question, even for someone without a PhD. in economics or a degree in journalism.  Clearly you would look at their income since that is the key factor in determining anyone’s credit worthiness.  We find that one has an income nearly double the other.  Now we are getting somewhere.  Unfortunately, nobody went even this far in the incompetent TV reporting about Greek per capita debt.

The first televised mention of per capita government debt in Greece that I observed was on The Daily Show with Jon Stewart, one of my all time favorite shows delivered by a really funny and smart comedian.  In his usual acerbic manner, Mr. Stewart pointed out that the Greek government has a debt of about $44,000 per person.  The punch line was that the United States government has a debt of $45,000 per person.  The implication is that since there is no big deal made about our debt in the international financial markets, the turmoil in that area over Greece is not right and the Greek people are getting ripped off by the filthy financial finaglers all over the world.

This is not a criticism of Jon Stewart.  He is a terrific comedian who is very clear that entertainment and comedy is what his show is about.  While his comedy has an intellectual edge, he may be accorded considerable comedic license with regard to the rigor, or lack thereof, in his presentation of data.  The same cannot be said of the many subsequent instances where exactly the same data about Greek per capita debt was used by so called serious journalists and commentators.  No further analysis or clarification was presented by those I observed.

As with the banker looking over loan applications, you do not need even a high school diploma to know that the debt is less than half the story.  The United States has a per capita GDP (income) of about $50,000.  Greece has a per capita GDP of about $30,000.  Now the picture of approximately equal per capita government debt takes on a very different look.  Again, no advanced degree in anything is required to see that Greece has a much bigger problem that the United States in managing its debt.

If the lame stream media of all ideological persuasions had even gone this far I would not have been moved to devote this post to such a seemingly arcane topic as Greek debt.  However, much more analysis is required to give the picture required to impart understanding of what is really going on here and its implications for the viewer.

As many regular readers of my missives know, they contain extreme skepticism of the pabulum passing for data released by the government.  When applying such skepticism to the subject at hand, we can be reasonably comfortable with the calculation of our federal government debt, though less so with state and local debt figures.  In the case of Greece, we can be almost certain that the actual debt is considerably higher that has been reported so far.  There has already been one incident where outright fraud was uncovered showing how the Greek government covered over significant $billions of debt.

Data on income and GDP are another matter entirely.  When I cite such figures, it is never to be assumed that I believe they are even close to accurate.  The purpose is almost always relational.  The idea is that manipulations and obfuscations are likely to be relatively consistent over time, so we can use a string of data to crudely relate one economic factor to another, even though each is deeply flawed.

In the case of GDP, while the US data overstates our income, Greek data is sheer fantasy.  Rather than bore you with minutiae I will draw an analogy to the fall of the USSR.  By all accounts the Russian economy collapsed.  In fact, nothing of the sort occurred.  The government owned and operated everything, turning out virtually worthless products and services which they valued richly on for the nations income accounts.  When the socialist system finally collapsed, the factories were shuttered and the jig was up on the true value of their output.  Greece is not Russia, but its government is a huge slice of the economy.  Therefore, their true per capita GDP is likely much lower than the 60% of the US per capita GDP than the raw data would indicate ($30k Greece/$50k US).  This makes that $44k per person Greek debt look ominous indeed, made worse by the fact that is rising faster than just about anywhere else.

This only begins to describe how hopelessly black is the darkness descending on the Greek economy.  There are additional cultural and legal factors that significantly exacerbate the problem.  For example, we take for granted the ease of passing title to real estate.  Not so in Greece.  For example, the government owns valuable waterfront property that used to be an airport.  Any sale is hopelessly mired in legal tangles so acute that the government, after years of considering the matter, has not even ordered a survey of the land.  They will do well to hire Hernando De Soto (THE MYSTERY OF CAPITAL) forthwith.

Culturally the Greek people clearly value leisure and security rather than achievement and productivity.  While we are moving in that direction, achievement is still a value we hold far higher than lolling on the beach.  In addition, corruption is culturally accepted as a normal part of life.  These are not precipitated by outright civil war.

There will be a significant vote June 30 on austerity measures to be shoved down the throats of the Greek people by the mandarins at the IMF.  A cursory review tells me that these measures cannot and will not work.  The sharp income tax increases will not bring in the estimated revenue.  The increase in the restaurant VAT from 13% to 23% is too sad to laugh at.  They want introduce special taxes on yachts, pools and cars.  Don’t those lowlife dirt bags at the IMF remember when that nonsense was tried here?  It nearly destroyed entire industries within a matter of months.  They want to crush successful enterprises with special new levies.  Of course there will also be new taxes on high-value properties and rich people.  Let the tidal wave of emigration begin!

These are not all of the tax measures.  I will not even bother to go through the so called expenditure cuts.  Suffice to say that those cuts alone will spark immediate and severe reaction among the overly pampered and coddled Greek populace.

None of this is about helping the Greek nation and its people.  It is all about keeping rich connected crony bankers in their Mercedes and BMW motorcars and flying in private jets.  It is about making sure wealthy speculators in junky Greek debt are richly compensated.  Normal folks have long since cashed in and taken their haircuts.  Looking to Iceland’s experience is inapt.  That country is too small to ruffle the feathers of the big birds.  There is too much tied up in Greece itself and the absolute certainty that if the IMF & company cannot bring the Greeks to heel there will be an unstoppable contagion of default throughout Europe’s periphery and then around the world.

Enjoy some of the best theater you will ever see.  You just can’t make this stuff up.

All the best to you all,

Stephen Reiss
[email protected]

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