Saturday, October 22, 2011

2012, here we come.... (#18)

In Greece the banks didn't sink the country. The country sank the banks — Michael Lewis, Boomerang.

Greece's bankers were amongst the most conservative in the Eurozone during the last decade. They somehow neglected to award themselves huge sums of money and stayed well away from the American subprime scene. (In fact the worst bet they made was on their own government.)

Instead you could say that the people earning whopping, unjustifiable bonuses over there can mostly be found working for the state: the average public sector worker in fact earns three times as much as the average private sector one, and has seen his or her pay double in real terms over the past 12 years bribes not included, as Lewis helpfully points out.

The state-owned railway company has to offset a wage bill of €400m and other outgoings totalling €300m against its annual revenues of €100m. Meanwhile its average employee earns €65,000 a year and expects to retire at 55.

So it's not just the lenders who are going to need to take a 'haircut' if the Greek situation is to have any meaningful resolution. To those who say that austerity is the not the right approach the current global financial crisis, I would say that in the case of the Greeks, oh yes it is.

So, while one can begin to sympathise with the Germans when they peevishly suggest that Greece should sell a few of its islands to help meet its obligations, all this would really achieve is leave them with fewer assets and a reduced 'export' income from tourism next time the debt gets out of control, as it most surely will, unless significant adjustments are made to the corrupt and wasteful Greek state.

Anyway, Lewis's excellent new book serves as a reminder that it is too easy to blame the bankers for this whole mess we're in (even the ones who were fishermen just a few years previously). Cheap credit created temptations and exaggerated behavious across whole sectors of society.

He likens it to locking whole nations in a dark room with a pile of borrowed money. Each succumbed to a different temptation...

"What the Greeks wanted to do once the lights went out..was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it."

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