July 9th, 2015

The News Persists in Being Sane, Important and Interesting Despite the Arrival of Summer

http://www.washingtonpost.com/news/morning-mix/wp/2015/07/09/south-carolina-rep-jenny-horne-on-her-historic-and-surprisingly-personal-speech-it-needed-to-be-done/

If you haven't seen the clip of Jenny Horne's speech, you might take a moment to watch it. I saw part of it on TRMS last night. In the initial moments of watching it, her pink suit is a little distracting, but by the time she starts in on the heritage argument and her own ancestry, it is awe inspiring. Nice to see progress in this extremely important matter that, imo, a lot of people had entirely given up on any progress on decades ago.

A Few Remarks about Greece

I sit around reading the news when I'm too tired to do something else, so I don't actually know anything at all. That said, I am getting incredibly tired of hearing people say really silly things that I would actually not expect them to say. For example, a friend of mine, who shall remain without initials or other identifying characteristics, let's call this friend X., listens to NPR. You would think that X. would be sensible on this topic, but up until a very few days ago, when I would ask X, hey, is NPR talking about Greece? X. would say, not really. And then a very few days ago, X. ventured an opinion: Boy, Germany really wants to kick Greece out of the EuroZone.

Oh boy.

If Germany wanted that -- I'm sure you can do a poll and find a significant minority of Germans who want exactly that, but you can find a solid quarter of the US in favor of and/or believing just about any damn thing you can think of so it really means nothing at all -- it would have happened by now.

Today, I was reading this:

http://www.nytimes.com/2015/07/10/business/international/deal-or-no-deal-greece-faces-a-difficult-aftermath.html

"Businesses are bewildered about how to prepare for a situation in which Greece has to start functioning on i.o.u.s or shift to its own currency. That cascade of events could begin as soon as Monday if a bailout deal is not reached and the European Central Bank cuts off the emergency lifeline that has kept Greek banks alive in recent months."

Wow. I feel like this is an irresponsible paragraph and I openly mocked it. At which point my husband indicated he seemed to think the ECB cutting Greek banks off was a real possibility.

NO IT IS NOT.

We all hate Varoufakis and are happy that he is gone, and his exit on a motorcycle to go to a bar with his blonde wife not wearing a helmet is absolutely indicative of the man's character. (http://www.dailymail.co.uk/news/article-3149848/Greek-army-riot-police-braced-street-battles-millions-polls-country-s-bailout-referendum-result-close-call.html) However, he was able to do what he did because he understood that there were a lot of very strongly motivated people and he played those motivations to create chaos and destruction. (Which, I might add, the NYT article referenced above does an okay job of capturing, altho at no point in the article is it made clear _why_ capital controls are so necessary at this juncture.) Everything about the current crisis comes down to the following:

(1) Normally, Greece swings between sucking money out of Western Europe and sucking money out of Powers East. Alas, currently, Putin is out of money because the price of oil is low and he's dealing with a bunch of financial pressure himself.

Draghi (remember, this is the guy running everything, to the extent there is an adult in the room -- and, I might add, he has absolutely no desire to crash the Greek banking system and suggesting he'd pull emergency funding from Greek banks is offensive and betrays a fundamental failure to appreciate his character and intelligence) on Greece getting help from Powers East:

http://www.reuters.com/article/2015/07/09/us-eurozone-greece-idUSKBN0P40EO20150709

"Asked if he expected Russian President Vladimir Putin to help Greece, Draghi said: "I don't believe so, I don't see it as a real risk ... and then, they don't have money themselves.""

So the I'll Just Ask Mom (or Dad) Instead Option is off the table.

(2) The other normal thing that Greece does when money gets tight is devalue their currency. Let's call this the Krugman option, because he, and a lot of other economists, keep wailing and saying, but if there wasn't a monetary union, this wouldn't be a problem! I'm not going to supply any links here because they are too easy to find. (Google "Krugman Greece devaluation" and you'll see page after page on the topic, including why internal devaluation is a terrible choice because of the downward stickiness of wages.) However, what Krugman has failed to appreciate is that devaluation isn't going to actually help in this case, because anyone outside of Greece, and anyone inside Greece with any power at all will continue to do business in Euros -- just like Greece did business in other currencies at various points in the past during economic crises.

So the usual solutions don't work. A lot of people -- especially Americans who are comparatively new to this discussion and who know someone who has a vacation planned in Greece and are trying to figure out whether that vacation is "safe" or not -- want to talk about how things got to this point anyway. Well, the usual answers apply: they spent more than they had. The usual next steps apply: either they need to cut back on spending, or they need to shop at the warehouse/discount store, or they need to increase their income. In this case, a lot of the problems of Greece comes down to governance and a commercial/"industrial" base which is unlike anything that most Americans are familiar with, and all the Americans who _are_ familiar with want nothing to do with. They need to get away from paper, cash (all that tip income to the professional classes is nucking futs) and increase average business entity size to take advantage of automation and economies of scale if they are going to compete in international markets. Right now, Greece is sort of like Etsy: everything is handmade and everyone is incredibly opinionated, and if your shit isn't handmade, they kick you out or make things so annoying for you it's easier to just leave on your own. It's okay to visit once in a while, but who would really want to live there? And if you're a German housewife and you buy a holiday villa there, once you figure out how things are run, you can't help but want to drag this developing nation kicking and screaming at least up to the 1990s, if not the present day.

Realistically, however, a lot of time has gone by, and the slow and steady bend the curve solutions that were kind of working up until Syriza won the election are clearly no longer an option. We have moved into Rip It Off territory, to use a bandage analogy. Sovereign debt defaults and outright insolvency do happen, altho of course it is embarrassing when it happens in the EuroZone, rather than in, say, some even more southern location that northerners can look down on with equanimity. (<-- I'm not endorsing this attitude. I'm mocking it.) And when they do, debt relief in conjunction with Okay You Need To Do Things Our Way For A While is the solution, more or less like personal or corporate bankruptcy. Because if we forgive this debt, we really want some certainty that you aren't going to be coming back in less than 7 years with exactly the same problem.

I'm currently trying to figure out exactly what paperwork Greece produced yesterday -- something about 3 years of keep us afloat and here's what we'll do to fix things internally in exchange. Greece has real problems with opaque money movement (I did mention the tip income to professional classes, but unless you've been reading about it already, it is _so much worse_ than you are probably imaging. Those Greek banks the ECB is so kindly propping up? They make mortgage loans on houses with payments that exceed the declared income of the person or persons who sign on the line. They have a system for imputing tip income to figure out what they can safely loan out. And of course NO TAXES on tip income there! Unlike here, where the IRS will impute a tip rate and tax you on it whether you get it or not. I _wish_ I was making this shit up. http://www.businessinsider.com/this-is-the-real-reason-greece-has-a-massive-tax-evasion-problem-2015-2). Their antique civil service in conjunction with the invisible money movement makes it virtually impossible for large enterprises to compete, because large enterprises actually have to pay taxes and small ones don't. That is gonna have to change. Greece also has a ludicrous pension system (yes, it has been improving and yes, they have a disproportionately large number of people in their population over 60 and yes, northern European countries give, per capita, their pensioners even more money):

http://www.nytimes.com/2010/03/12/business/global/12pension.html

So what should we expect in the next few days?

The money is not going to be coming back from Greece. At least, not all of it. Just moving the payments further into the future isn't going to get it done. We should expect debt relief to be a part of the package that is negotiated in the next months/years.

While the EuroZone has a very standoffish approach to how the internals of members countries work, I think it has hit a limit here. I actually don't think the Northern members of the EU mind subsidizing those nice southern places where they vacation. I think they _do_ object to discovering that there isn't even a real land registry when they want to buy a holiday villa in those nice southern places where they vacation.

http://www.nytimes.com/2013/05/27/world/europe/greeces-tangled-land-ownership-is-a-hurdle-in-recovery.html

I also think that Northerners feel like they are being shaken down when there is both the official price and payment, and a secondary price and payment on top of the official one, that is supposed to be made in cash and is larger than the official price. Northerners think this is a bribe and they start throwing around words like corruption and then everyone gets upset and the nice holiday is ruined. I don't know how this is going to be solved, but I think it is safe to say that when Greeks object to being treated like a third world nation, this particular economic characteristic is going to be high on the list of Well Then Don't Act Like One.

Here is what isn't going to happen.

There won't be a new drachma.

There won't be a Grexit.

The Greek banking system will not be allowed to collapse completely. Probably.

And in the end, the amount of money the EU spends on bringing Greece up to standard will dwarf the amount of money that Greece owes creditors in the EU. But the EU will do it, for basically the same reason we don't let certain states in the United States exit our union, even tho they have horrible politics, their educational system is subpar, they provide inadequate healthcare and are generally unpleasant and backward places. We don't let them out. We don't kick them out. And we transfer money to keep pulling them slowly into the less distant past.

Because they are Ours.