Greeks Beware of High-Pressure Sales Tactics

In my last post, I wrote about the ‘common enemy’ in Greece and elsewhere; it appears that the markets are unexpectedly taking the first step to defeating it, with the aid of the Germans. It looks as though the EU will not have time to orchestrate a bailout sufficient to keep Greece solvent and the Germans have been busy unwittingly insuring that a bailout does not happen with inflammatory posts and with their typical overanalysis.

I want to take a step back for a second. This all started as a real ‘issue’ just a few months ago, and in such a short time has escalated into a crisis of near-epic proportions. As a veteran in sales, I’ve witnessed many shady negotiating tactics - the most disgusting of which is a salesman putting a pen in someone’s hand, and creating panic with phrases like: “If you don’t do this immediately it will be gone and will cost you a pile of money,” or “This is the best deal you will ever get, and if you don’t sign now you’ll end up much worse off.” Buyers should always be wary of being pressured into the first deal on the table or to yielding to these tactics.

I asked for unity and solidarity last week, and today I ask this: people of Greece, please do not listen to the rhetoric and make the naïve mistake of taking the first deal offered under manufactured duress. These are national books and not, for example, someone’s personal finances who did not have the time to anticipate the effects of a global credit crunch. Greece’s debt to GDP ratio has been in the realm of dangerous (over 70%) for years. Why were the European powers not at least negotiating in earnest all that is on the table now, to have a stage set to take care of what we now know was known to be a virtual certainty? Are they that stupid?

Of course not. And if they are, they certainly have people around them who aren’t – so they are trying to take YOU for the fools. “We finally got this deal which is so much better than the bond markets, and more money than they originally offered! We are on the brink of collapse, we have no choice but to sign now!” is what you will hear. Don’t get sucked in. How can only 2% of Europe’s GDP cause such ripples through the market? I will explain that in a future post when I have a bit more time, but here’s a hint: ‘the Domino Effect.’ And it’s bigger than you think or that the paper’s are just coming out with now. What was Papandreou doing in the United States with Obama? If he was looking for money wouldn’t that have been arranged prior to a visit? He didn’t even get a crumb but they sure spent a lot of time talking and smiling…

I had many responses to my last post in various conversations, chat forums, and emails. I saw that there was still a desire to argue about the woeful state of the long-standing Greek economic system and play ‘the blame game’. Clearly, a number of people had missed the point of ‘unity’, so I translated it into an analogy that seemed to resonate with everyone.

Consider the following scenario:

Seeing an opportunity, I approached a rather intelligent, but naïve, panhandler on my street corner and offered him an unconditional $100,000 in exchange for a portion of his daily take. Until then, he had little in the way of possessions save one solid gold ring (a family heirloom), but what he had was all his. He would sit on his corner for a few hours a day, and otherwise have a good time drinking and partying without a care in the world.

He was a little wary of my offer, so to clinch the deal, I hired another, more senior panhandler he respected to convince him of how much better his life would be. He was sold when I added that: “That ring of yours is also worth a fortune, so you can always borrow more against that if you need to.”

Unsurprisingly, he spent his wealth like water, being inexperienced with finances and having no understanding of how much (or little) money $100K was. He intended to get some new suits, a stable address and get back into the workforce, but the right time always seemed like tomorrow, and he eroded his money within a few years with fine meals and buying rounds at the bar. But by then, he didn’t have much time for merriment anyway - to make the payments on the loan, he found himself having to panhandle almost constantly. Occasionally he borrowed a little from me against his gold ring to stay afloat, but these new payments compounded his problem.

One day, he came to me and told me that no matter how hard he panhandled there was no way he could continue to make his payments. I knew that the money had been pissed away and not spent on trying to better his life, but it was loaned unconditionally, so he had been free to use it as he pleased. Do I consider whether I may have made an error in judgement by lending the money to him in the first place?

No – instead, I start a neighbourhood campaign against him, telling everyone I see that he is a deadbeat who does nothing but party, and not to give him a cent. Now left with nothing, he is panicking. After I week of this torment, I offer him a new deal. I tell him that I’ve reconsidered and am willing to bail him out again after all – but this time, with conditions - I will give him $10K that must be put towards new suits and finding a job, and he must immediately cease drinking and partying. I will take full ownership of his gold ring, receive his entire salary once he is gainfully employed, his children’s salaries, should he have any, and he must agree to be on-call 24 hours a day as my personal assistant.

He turns to the so-called 'older and wiser' panhandler who first advised him, who tells him he has no choice to take this new deal. Left without his old way of life, he is now surrounded by people calling him a deadbeat, and fearing that even the small improvements he has made in his life will be stripped away, leaving him far worse off than before he accepted this “deal of a lifetime”. What should he do?

a) Take the deal – what choice does he have
b) Find a new corner in a new city, and try to return to his old way of living
c) Tell me to shove it, clean up his act on his own, keep all he earns at his new job…and get to party in moderation

I hope the Greeks remember the old wisdom of our forefathers – ‘Pan Metron Ariston’ –
and choose c). I know that they have the strength to pick c), and have the wisdom to see that a) can not even be considered an option.

And for a little added kick, in case the panhandler reference is not enough - Dropis. After the dust settles - and not before - please get your house in order…all of you. The whole world now knows what you have all known for years. The house is a mess and ‘that’s just the way it is in Greece’ will no longer cut it. I would like to go back to holding my head high wherever I go in the world, as a descendant of Aristotle, Socrates, Plato, Homer and Alexander, and not have to answer questions about the backwardness of my ancestral home coming from people whose ancestors were swinging from trees when we were building the Parthenon.

Read part 1 here:

The Time for Greek Unity is Now!

And my latest follow-up:

The Speech Papandreou Should Be Giving

The Time for Greek Unity is NOW!

I was sitting at the table this Easter over some ouzo and retsina, listening intently to what the old guard had to say about Greece's economic crisis. "The farmers took EU money to change their crops, and nothing changed other than the new house and car...kala na pathoun (they deserve what they are getting)." After a bite of lamb, one of the other elders piped up and said that "the government bureaucrats are useless and corrupt. It takes five of them to do the job of one, and even then it doesn't get done without a fakelo (bribe)...kala na pathoun!"

The most effective way to defeat an opponent is to divide and conquer, and the powers that be have been doing a phenomenal job. As Greece reaches out to the IMF and EU for a ‘rescue package’ organized labour is taking to the streets for a 24-hour strike. However, polling shows strong public support for the impending austerity measures, most of which focus on the public sector. Labour is still the strongest force in Greece, but if the broader public doesn’t stand in solidarity, the IMF will see even freer reign to impose its policies. And Greeks are delusional if they think that only unions will feel the impact.

Policies like IMF-mandated wage concessions, service cuts and higher personal taxes will not improve Greece's financial outlook, even with lower loan interest and 'bailout' funds in exchange. These restrictions have been shown time and again to hamper economic growth and cause social instability (eg. Argentina). With assistance from the IMF in Greece’s moment of desperation, the bleed will be slowed (and mildly less painful), but will make the reckoning much worse in the future.

The same conversation that went on at my family's Easter dinner table is going on all over Greece. I recently wrote about the trading of my homeland's formerly enviable lifestyle for the trappings of a consumer-driven society- new cars, televisions and the devastating credit card and mortgage debt that goes with it. Greece, long viewed as the ‘irresponsible stepchild’ of Europe, is having the blame for its crisis placed exclusively on its reckless personal and public spending. They even believe it themselves.

However, this story sounds awfully familiar.

Here's an excerpt from an article published in the Washington Post back in 2001:

"But it is neither necessary nor desirable for a government to balance its budget during a recession, when tax revenues typically fall and social spending rises. The "zero-deficit" target may make little economic sense, but it has great public relations value. By focusing on government spending, the IMF has managed to convince most of the press that Argentina's "profligate" spending habits are the source of its troubles."

Stellar public relations indeed- the world's financial institutions have already succeeded in making Greece a global laughing stock, a caricature of irresponsibility and lack of self-control. Not only that, but they've convinced most Greeks of it, too. It keeps them too busy pointing fingers at each other to acknowledge and take action against the true architects of their disaster. But wasn’t there the same culture of ‘fakela’, ‘meson’ (cronyism) and tax evasion long before Greece’s economy went into a tailspin – why do these failings account for the whole problem now?

As soon as Greece joined the Eurozone, deregulation and corporate tax cuts were the order of the day - all imposed by the EU in accordance with policies that were completely disconnected from the reality of each individual member state. Greece has never had a strong economy, and there is plenty of evidence to support that joining the EU – in doing so, losing control of its currency, being forced to aggressively deregulate, throw open the door to foreign investment, and cut corporate taxes – turned Greece’s stable-but-weak economy into the abject failure it is today.

“Greece shouldn’t have joined the Eurozone in the first place,” said M. Nicolas Firzli, Director of the CEE Council – a Paris-based economic strategy think-tank – and member of the International Committee of the French Society of Financial Analysts (SFAF), in a telephone interview. “Greece was de facto blackmailed by Brussels, Berlin, and Washington into severing its ties to Serbia in the mid-nineties, in exchange for the promise of further financial integration within the EU at a time when Greece clearly wasn’t ready to join the euro.”

PIIGs Strike Back

Through EU liberalization, the global banks forced open Greece’s market for debt, and are the primary benificiaries of its current state. Did the Greeks have to take advantage of readily-available debt? Of course not. But the Americans didn’t have guns held to their heads when they took out high-risk mortgages, either. If a financial product is being aggressively sold to people without the background or experience to understand its implications – being sold, no less, by people who should know better – it doesn’t take a genius to see the consequences. I won’t bother to mention the USA’s astronomical deficit.

Argentina’s crisis of the early 2000’s, while not exactly comparable to Greece’s in many respects, offers some important clues for how the Greek people should proceed. IMF-mandated policies like tax cuts, deregulation and the cessation of government spending drove the country deeper into crisis – and recovery only started after declaring bankruptcy. Now, Argentina is viewed as a moderate success story. Even Iceland, where the public is demanding a default on foreign debt and refuse most austerity measures, just received an upgrade from Moody’s. Upon the news that Greece wanted a rescue package, their rating went down.

The problem isn't the 50 extra Euros in the pocket of a government bureaucrat. If the people of Greece don't realize who the real enemies are and band together, the bondage of the Ottoman Empire will have been fully replaced with shackles of a different variety. Despite what many in Greece think, the restructuring will impact everyone from government workers to the unemployed to the private sector. And future generations will also pay. The only solution is to not pay now.

Declare bankruptcy. Default on loans. Find an exit from the Eurozone and fully restructure their debt. Just like with Iceland, another and better solution will be offered when it becomes clear that Greece won’t play ball. And before any of this can happen, all of the people of Greece need to rise up, take to the streets en mass, and make it abundantly clear that they won’t sell out the future of the country – and any prospects for a good life for their children – to ‘take responsibility’ for a crisis that was NOT their fault.

Throughout history, all of the disparate Greek states have been able to stand together against a common external enemy – no matter how much they ordinarily fought each other. Make no mistake, the Greeks will have to get their house in order, but if they are not united in their opposition, it will be shoved down their throats.

P.S. All Greeks should be yelling a hell of a lot louder, because they are hardly getting any international press - aside from being made the scapegoat for every market and currency fluctuation across the globe.

Read Parts 2 and 3 here:

Greeks Beware of Pressure Sales Tactics
The Speech Papandreou Should Be Giving

With Interest Rate Hike Looming, Canadian Dollar Hits Parity

The Canadian dollar has been edging up the charts for much of the last month, reaching parity with the USD this morning after closing at just $98.4 last night. The cause for the jump? Commodities prices rose, linked to the strength of our dollar...but the big news is that the Bank of Canada has dropped its conditional commitment to keep interest rates steady until the end of June.

"The central bank became the first Group of Seven country to
signal it will raise interest rates, possibly as early as June
1, as the economy recovers faster than expected. The bank kept
its key rate at its current ultra-low 0.25 percent level."

Canadian Dollar Rises

With the conditional guarantee removed, it's obvious that interest rates will start climbing in short order. What does this mean for the Canadian economy? More on this soon.

'Cassandras' Finally Get Vindicated

There's no question that 2010 is the year of Cassandra, Greece's own ignored prophet of doom. As were 2009 and 2008, arguably, but the last few months have seen more and more critiques of excuses and proclamations of ignorance. For the financial crisis in particular, the question of "why didn't anyone see this coming?" is finally being replaced with: "why didn't anyone listen?"

The NYT reported today on some frustrating examples of disregarded warnings, including a shamefully under-reported story of a financial analyst who spent 8 years jumping up and down in front of the SEC, trying to open their eyes to Madoff's Ponzi scheme:

"Harry Markopolos, a Boston financial analyst, has been out promoting his new book, “No One Would Listen.” It is an account of the eight years he spent trying to persuade the Securities and Exchange Commission that Bernard Madoff was running a multibillion-dollar Ponzi scheme. Mr. Markopolos recounts his tireless efforts to wave red flags in front of government watchdogs. In the spring of 2000, Mr. Markopolos says he tried to explain to a senior S.E.C. official why Mr. Madoff’s numbers did not add up, but “it very quickly became clear he didn’t understand a single word I said after hello.” In the end, perhaps $65 billion disappeared, much of it belonging to charities and retirees."

Speaking of Ponzi schemes, here's something I caught last night on CBS - financial expert Janet Tavakoli, who forewarned about the Ponzi-like credit crisis and is now taking on Goldman Sachs. Check out the video linked below, it's well worth it.

Tavakoli on Goldman Sachs Fraud

Is Greece Europe's California?

Or as a rash of recent articles have put it, is struggling California the USA's answer to Greece? Of course, there are many comparisons that extend beyond beautiful weather, rocky terrain and perfect beaches, as I mentioned in a previous post.

It's a race to see who will default first, according to this article in the Wall Street Journal. It's one of many pieces in the last few days to make the point that equating the two economies is comparing apples and oranges - or olives and oranges, I guess.

According to the WSJ, US states play too important a role to let flounder:

"...one third of the $3 trillion of total municipal debt in the U.S. is held by individuals and mutual funds. Thus, the Feds would likely act to prevent widespread defaults from wiping out a significant amount of household wealth in the U.S. and causing other investors to flee the market in fear, according to Roubini.

By contrast, Greece and the other struggling nations that use the euro can’t take such a euro-zone backstop for granted, something seen today in Fitch’s downgrading of Portugal by one notch and its issuance of a negative outlook for the euro-zone country."

The Eurozone has no obligation to bail out member states, unlike the backup the US government will no doubt provide. In the context of the US, California is certainly "too big to fail"...it has the distinction of being the largest economy in the country, and the 8th largest in the world.

The New Yorker also had an excellent analysis:

"The European model would do more harm than good, as American history shows: in the early eighteen-forties, after the bursting of a credit bubble, many states found themselves in a debt crisis. The federal government refused to bail them out, and eight states defaulted—a move that cut off their access to credit and helped sink the economy deeper into depression.

The U.S. did then what Europe is doing now, putting the interests of fiscally stronger states above the interests of the community as a whole. We seem to have learned our lesson. If Europe wants to be more than just Germany and a bunch of other countries, it should do the same."

The US depression the author referred to was in the 1840's - what major event occurred soon thereafter? Knowing the current (and historical) volatility of many fiscally-troubled European nations, it's not a stretch to envision arms being taken against the Union. I wonder what colours they will choose for their uniforms. The Greeks have dibs on blue.

Update on the Strength of Canadian Currency

You may have recently read Canada: A Safe Haven for Foreign Investment posted on March 24th. I will continue to post relevant articles as I come across them that may provide some insight into the matter. This is a must-read: Canadian Dollar at Parity

As you can see, the Canadian dollar has flirted with parity even in the face of a relatively strong USD vis-à-vis the Euro and other currencies.