2016 - The Year the Frogs Boil?

"The premise is that if a frog is placed in boiling water, it will jump out, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death. The story is often used as a metaphor for the inability or unwillingness of people to react to or be aware of threats that occur gradually." From the Wikipedia article "Boiling frog".

Looking back over 2015 I see that I stopped writing mid-year. What I didn't stop doing was starting new articles, only to close them unfinished, or deleted them when they were done. There were so many topics, but self-censorship got the better of me - imagine that. There were just too many stories in the news, and too many desired knee-jerk reactions. The topics have ranged from terrorism and Islam, to economics and Greece.

In summary, 2015 feels in retrospect, as the year the frogs began to feel the heat. Some are getting even more lethargic, others are getting worried. I'm in the worried camp. While I'm not making any predictions about 2016, it certainly felt like 2015 was the year the heat was turned up on the Frogs (that would be all of us, not just the French). 

That, or the frog in a blender.  (Go on, you know you want to...) 

2015 certainly was a full year, so let's begin.

The Police State

2015 may be seen as the year in which the "modern" world died. In the United States it has become clear that the system is broken, that guns and Trump are viewed as acceptable, possibly even desirable antidotes to an imagined breakdown of central government. Police killed over 1000 people in the United States in 2015, compared with 3 (yes, 3) in the UK in 2015. In a land where 30,000 or more people are killed by guns each year, if you want to see how many people were killed near you, there is now a handy tool to help.

In addition, Asset Seizure in the US (the "legal" seizure of a persons money or other assets by police because the police think the assets might be used for or gained from criminal activity) for 2014 exceeded the total estimated value of burglaries in the US. Apparently police seized $4.5 billion from citizens, while burglars stole only $3.9 billion.

So the United States has become a corrupt police kleptocracy, in which the very act of living can result in you being killed by the police, or having your assets seized simply because they need your money to boost their budgets, becoming "self funding gangs".

The Police State came to Europe in the form of the selective oppression of the peoples of a member state through economic terrorism and abrogation of democracy. Institutional Terror is equally the tool of "liberal" nations. In Greece, the ECB, IMF and the Germans effectively enforced a coup d'état against the Greek government and people. After years of failure of policy, resulting in the enrichment of a few and impoverishment of millions, the Greek people voted over 60% against the austerity programme imposed on them. The ECB (but not the ECB alone, oh no) effectively said "Do what we tell you, not what your people demand, or we will starve you all to death".

This is the New Europe, one in which as un-elected cabal in Brussels, backed by (elected) leaders of (a few) of the major powers of Europe, simply impose their will on all. Democracy is allowed to continue as a joke at the local level, but no longer permissible as a mechanism for the expression of the will of peoples.

Terrorism, ISIS and others

While ISIS enjoys distributing videos of beheadings, apparently our ally Saudi Arabia has beheaded more people (144) in 2015 than ISIS. You can have your head separated from the rest of your body if you are foolish enough to express unauthorised thoughts or actions such as Apostasy (oops, I don't want to be a Muslim any longer), Adultery, Witchcraft and Sorcery.  And Saudi Arabia celebrated the new year with an additional 47 executions.

Turkey, our NATO ally, has been exposed as supporting ISIS, possibly at as high as level as the son of the president, by buying, shipping and refining ISIS oil. Meanwhile, Turkey holds a snap election at the same time as, strangely, terrorist attacks suddenly increase, driving voters back into the arms of the existing government party. Using that 'mandate', the Turkish government begins to pound the crap out of the Kurds, reminding them of their place. Interesting that the Ankara government is apparently supporting ISIS while suppressing their Kurds - "The enemy of my enemy is my friend"?

Then, in what could only be considered a major provocation, Turkey shoots down a Russian aircraft over Syria, claiming that it had violated Turkish airspace. No doubt it did, and the flight paths released showed that it did, for a few kilometers are most. All this in a year in which, by October 2015, Turkey had violated Greek airspace over  1400 times (suddenly stopping on the day that it shoots down a Russian fighter). In 2014, Turkey violated Greek airspace over 2200 times.

NATO clearly is on the verge of falling apart, if one NATO country openly violates the territory of another with impunity, while receiving military aid from the US, and at the same time apparently supporting a common enemy, and shooting down the aircraft of a common partner in the fight against ISIS.

Of course, the year began with the terrible attacks in Paris on Charlie Hebdo (and the Jewish supermarket). If only that were the end of the terror for Paris. Bookmarking the year was the November 13th attacks, killing of 130 people. In both cases, these were acts of terror carried out by Muslims against a liberal and mostly free society, in which secularism is deeply embedded, and religious rule has no place. The people who carried out these attacks were scum that had found "God" in the religion of their elders, and read only the bits of that religion that sanctified them for their barbarity.

What remains equally shocking is the depth of feeling within the UK Muslim community against the values of the liberal Western country that they live in. A February survey by the BBC was supposed to show that the majority of UK Muslims are opposed to the attacks on Charlie Hebdo and others, and reject violence as a mechanism to achieve an Islamic culture / state / law in the UK. Unfortunately the headline should actually read "27% of UK Muslims have some sympathy for the motives behind the Charlie Hebdo attacks in Paris". 27% of UK Muslims. That is sickening. Even as Paris was under attack again, UK Muslim "leaders" called for UK Muslims to struggle for an Islamic State in the UK.

Some of the dead (source unknown)

In April in Kenya a university was attacked, with captives being asked if they were Muslim or Christian - the Christians were then murdered.From the Wikipedia article accessed on 3 January 2015: "On 2 April 2015, gunmen stormed the Garissa University College in Garissa, Kenya, killing 148 people,^[1][2] and injuring 79 or more. The militant group and Al-Qaeda offshoot, Al-Shabaab, which the gunmen claimed to be from, took responsibility for the attack. The gunmen took over 700 students hostage, freeing Muslims and killing those who identified as Christians. The siege ended the same day, when all four of the attackers were killed. Five men were later arrested in connection with the attack, and a bounty was placed for the arrest of a suspected organizer."

Economic News

The US economy is in a dubious state as 2016 arrives. After all of that news from 2015, we haven't even come near the economic news, unless you include the continued rape of Greece as economic news. And what a year. Markets ended effectively flat at the end of the year, as printing money slows down in the US, but ramps up in Europe. Yet for all that pumping, the velocity of money continues to fall. The question is what will happen to inflation when velocity increases? And velocity must increase for economies to grow again, and to actually employ people more people.

In the US, Amazon (AMZN) reached a PE Ratio of x900. Compare that to Cisco which, during the Dot-Com bubble went from a PE of x40 to x200 before crashing. How can any company be valued at 900 times earnings? Then look at Netflix (NFLX) at x440, making Google's (GOOG) PE ratio of "only" 36 look downright cheap. While the financial press has all sorts of good reasons why these PE Ratios still represent value, these remain historically scary ratios.

Meanwhile in the US again, the "Middle Income" (Middle class?) has shrunk to 51% (some say less than 50%) of the population. This is not news, nor is it an unexpected or unknown trend. This continues a trend that I was first introduced to in a university level demographics course in 1981.

 

US Labor Participation Rate

Percentage of workforce employed has dropped to levels not seen since the Jimmy Carter presidency. While President Carter is truly a great man, he is not remembered for managing a great economy, even though labor market participation did grown under his tenure. Month on month the BLS (Bureau of Labor Statistics) has reported gains in employment, yet the rate of employment growth has trailed the number of workers coming into the workforce, resulting in a continuing net reduction in participation rates. Looking at this BLS link, expand the period from default 10 years back to 1975 to see the full growth and fall of the participation rate.

 

US Inventories to Sales Ratio

Throughout 2015, the inventories-to-sales ratio has been growing, and at 1.38 is the highest that it has been since the middle of the Great Recession. Fundamentally, companies are building inventories faster than sales, a trend whose reversion to mean can come through a recession. Equally, long term trends have allowed for a reduction in the ratio without recession. None the less, it is a worrying indicator.

In December the Fed raise the discount rate by .25%, the first rate risk in nine years, offically because the economy is showing strength. Of course every increase in the Fed rate also increases the cost of borrowing by the Government. Some commentators suggest that the real motive is to protect the reputation of the Fed after too many years of policies not delivering what was promised, and suggest that an additional reason for the rate hike is to provide the Fed with some ability to ease when the next recession arrives. 2016 or 2017?

So, what about the rest of the world?

China is slowing - not stopping, but slowing, and China slows only if the rest of the world slows, and the rest of the world slows as China slows. First it was seen in collapse in commodity prices, followed by a collapse in the "Baltic Dry Index" - the benchmark cost of transporting goods by ship. The Baltic Dry Index has dropped to historic lows in the past months. The last time the Index dropped so low was 2008, as the Global Financial Crisis (GFC) was in full swing. Why does this matter? In growth periods excess new shipping was laid down in shipyards, and that new capacity is now online, and with that excess capacity, prices naturally fall. But this should result in capacity being removed from the stock of global shipping capacity. This is not happening yet.

It will, because the total volume of shipping has also dropped, not just the value of products shipped. This is not a seasonal problem.

As the markets opened for 2016, we saw the Shanghai market drop by 7% before the stops kicked in, ostensibly due to "weaker-than-expected manufacturing data".  We will see how this plays out over the coming weeks and months.

Around the world, easy central bank money has fueled share buybacks that add nothing to the productive capacity of companies, but that serve only as an additional mechanism to the transfer of wealth. Share buybacks simply transfer financial wealth out of the company by increasing company’s debt (at very low interest rates it must be said) to equity, effectively creating a future obligation on the part of the company. So while companies’ future obligations increase with little or no corresponding increase in productive capability, institutional shareholders, which today means funds that hold equities (typically, for relatively short periods of time) take the direct financial benefits of the buyback, and move on to the next company that offered the potential for significant return. No value is added, debt is increase, productive capacity stagnates, and the underlying “real” economy sees no benefit.

It is important to note that share buybacks are a logical response to central bank purchases of bonds and otherwise “printing” money. When almost free money is being pumped into the system, it will find a place to land, but not necessarily achieving the desired results. Unintended consequences abound.

Turning our eyes to Europe and the anti-austerity movements are gaining traction, with no idea that their imposed versions of "austerity’ are a joke compared with what Greece has had to endure. Countries like the UK have made big noise about their austerity budgets, while increasing their total debt loads. In fact total debt (i.e sovereign, corporate and household debt) has increase apace around the world, reaching 289% of global GDP (excluding unfunded commitments and mandates). These debt levels are unsustainable, and are already reducing potential growth.

Austerity has become the euphemism for not having enough national income to meet the basic fantacies of enough of the people to ensure that the ruling party has a chance of staying in power. In France for example, the inability to Chirac, then Sarkozy and followed by Hollande to implement even basic reforms has resulted in a government that continues to drop deeper into debt while at the sime time pretending to be implementing a programme of austerity. Basically, France is a country waiting for its own “Greek” moment.

                                            

French banks are poorly capitalized, and the myth of financial system reforms will only exacerbate the coming recession / depression.

Visualising government benchmarking data

The New Zealand government has released their most recent Benchmarking Administrative and Support Services (BAAS) data. What is interesting about this data is the ability to analyse spend, not at a highly detailed level, but certainly in more detail than previously possible. The information is provided in Excel. What is interesting is what you can do with the Excel data for analysis and, better, display of information graphically, to derive meaning.

I highly recommend taking a look at how this, relatively high-level, information can be presented.

http://zyanbass.appspot.com/

 

 "The New Zealand Treasury runs an annual benchmarking survey across 26 Government agencies in order to gather information on the cost, efficiency, and effectiveness of administrative services delivered by a sample of the state sector. The most interesting portion of the BASS data is about BASS agencies's spend on ICT and that's the data this website (mostly) explores."

 

Before discussing they need for a more detailed taxonomy, I'll make the following observation: The information is available in Excel, against a single set of line-item names, and columns for periods and spend. It is simple, it is easy to use and import, and absolutely ZERO specialist XBRL knowledge is required to import, analyze and gain meaning from that data. There is much to learn from such initiatives.

 

The need for a more detailed taxonomy

 

The need for a more detailed taxonomy of ICT and other government expenditure

Financial reporting and analysis provides value only when used to compare performance against either targets, benchmarks or competitors. Fundamental to the ability to perform effective analysis is the presumption that all reported line items are equivalent across reporting entities. Equivalence of meaning is the critical point, and without adequate definitions, there will be no clarity. Therefore, there needs to be an agreed taxonomy of reporting terms, at sufficient levels of deconstruction to allow the reporting of exactly the information that the entity wants to report, at the level of detail they want to report, linked to a definition that is accepted as the only definition for the reported level of information. 

 

Granularity is also required to ensure that there is minimal overlap between reported items, and little opportunity to report items in one of multiple categories or line items. When considering a Balance Sheet (for example) the first and most obvious question may be "is the reported item an Asset or a Liability?" It cannot be both, or either. Cash is not a liability (unless you are a bank), as is Property Plant and Equipment. Likewise, Accounts Payable and Long Term Debt are liabilities. There is no overlap, and therefore the information, unless you are Worldcom, should only be reported on one side of the ledger of the other. 

 

How does this relate to BASS? While there are over 800 line items in the BASS spreadsheet (many are either summation or calculated lines and not actual reportable line items) there can be overlap or alternative interpretation of how and where information will be reported. This reduced inter-agency or entity performance and expenditure comparisons. 

 

Too often interpretive differences in the meaning of scope of potential meaning of a reported line item can lead to multiple entities reporting the same line item, while defining the detailed content differently. For example one agency could include a software charge as 'Software' while another records it as 'Outsourced' because, while the agency licences it, it is only used to enable an outsourced service. Neither are necessarily wrong. Such use of a common element with slightly different interpretation increases the complexity of comparatives, and increases the amount of manual intervention required to gain meaningful insights from what is theoretically the same information. 

 

Any taxonomy does not need to be complex in and of itself, but it does need to represent an agreed set of line items and associated detailed descriptions. The ICT section of the BASS reporting framework have approximately 125 line items, many of which are summation items. 

 

What is required for effective reporting is not an ever expanding list of potential line items against which to report, but a set of line items elements with very clear definitions. For example, the US-GAAP "Generally Accepted Accounting Principles" taxonomy (in XBRL, which I do NOT recommend) has over 18,000 possible reporting elements, growing every year. In addition, companies can add additional custom items, only increasing the complexity and reducing comparability. Imagine if each BASS reporting entity could choose to add line items. 

 

Instead, keep the list as tight as meaningful, and clearly define the boundaries of each item. In this way is it is possible to reduce the ability to select from any of a number of items depending on your individual interpretation. The benefits? Simplified reporting, greater clarity, and easier comparability between entities, and greater value in the information reported and analysed.

Why Everyone Wants a Grexit

All the wrangling and grandstanding in Europe today has one purpose; to force Greece out of the Euro while convincing all other countries to stay in the Euro. The Germans and the Troika want Greece out, even though they cannot say it out loud. The Greeks want out, even though they cannot say it out loud. And they all want the Grexit for their own reasons, little of which have anything to do with the good of Europe of the Euro per se.

So Wow, OXI (No) won, and by a landslide. Surprised? Then again, anyone listening to anything coming out of Greece should have expected it. With the deal off the table, a Yes vote would have been the equivalent of signing up for German Language lessons. A Yes vote was simple capitulation to Berlin and Brussels, even if dressed up as a vote for stability. OXI was an affirmation of the independence of Greece and the Greek people.

I wrote on April 15th, 2015 that the Grexit was inevitable, and it still is. Sure, there is another conference, and there will be another after that. Nothing will be achieved in these conferences; if the Greek government does not agree to capitulate to serial defaulter Berlin and Brussels, aka The European Branch of Goldman.

And nothing will be agreed because it is already accepted that the loans cannot be repaid, that the debt is unsustainable. Therefore, asking Greece to demonstrate how they can pay back loans that they cannot repay is asking them to lie, again. If the Troika, Germany and the rest of Europe are willing to pretend, then maybe. But nobody is pretending any longer.

And while Prime Minister Tsipras insists that he does not want to leave the Euro, those statements are for the "centre-left" of his party and the wider population, as they face insult after insult from their European brothers. In reality, Tsipras has no intention of staying in the Euro, and is actively creating the situation that enables an exit that can be "blamed" on the Troika, Germany and France.

Greece’s prospects of staying in the eurozone have dwindled further after the Prime Minister Alexis Tsipras arrived at an emergency summit of his fellow eurozone leaders in Brussels without a concrete plan to resolve his country’s debt crisis.

Eurozone leaders and ministers struggled to contain their incredulity as Mr Tsipras and his new Finance Minister, Euclid Tsakalotos, could only offer oral outlines of their request for another bailout, despite the EU’s demand for fresh proposals after last Sunday’s referendum rejected the previous bailout terms. The Independent

All Tsipras need to do now is wait for the news to gets out that Europe will demand that all Greek bank accounts be raided in a "Depositor Bail-in" - the numbers vary from as little as 30% of all account values greater than €8,000 up to "What have you got, hand it over". This would see what little is left in any Greek bank account confiscated. Think Cyprus without any mercy.

Once that is presented as part of the in-or-out proposal from the Troika, Tsipras, with no money left in the banks, will have the support he needs to introduce a New Drachma.

Two Options, One outcome

Because we need to be clear, there are, from the Loan Sharks perspective, only two options. I'm sure they've gamed this out already, but I see only one longer-term outcome.

1. Write a deal that will save Greece, and watch the other countries demand the same.
2. Punish Greece, leading to the introduction of IOUs (also known as New Drachmas) and force Greece out of the Euro.

Both of these lead to the same longer-term outcome: death of the Euro, but option 2 pushes it out to someone else's watch. With option 1, the demanded bailouts and write-off of the other countries will bankrupt Europe. With option 2, Greece does an "Iceland" and after more pain, begins recovering, though from a lower base, resulting in evidence that there is successful and meaningful life after the Euro.

There is no 3rd option, the "do nothing" option, because "do nothing" resulting in the actualisation of option 2.

It is important to remember that the decisions that are being made by all sides are NOT about saving Greece or the Euro, or France, Spain, or any of the rest. It is all very personal. It is about saving the stashes of dosh that these people have made, saving their status, and saving their jobs. And this goes for everyone involved in this.

Greek Political Unity

Tsipras is doing what he's doing because this is the only way that he saves Syriza from political oblivion. The other Greek parties are supporting him because (unsubstantiated, but my own guess) they know that if they do not, there are "perp walks" in their futures. If there wasn't the implied threat from the Greek Parliamentary Committee on the debt, then they would each be doing everything they can to undermine Tsipras and Syriza.

Beyond the threat of the Parliamentary Committee findings, there is the "Lost List" (the ""Legarde List") of individuals with significant bank account at the Geneva branch of HSBC in Switzerland, a list of 1991 names that then Finance Minister Giorgos Papaconstantinou, um, lost. There is a much longer list of 80,000 names that Syriza is looking at. There will be plenty of politicians and various ministry officials on that list.

So the deal is pretty simple, support Syriza in getting Greece out of the Euro and implementing a recovery programme, or go to jail. I think we have the basis for a Greek Government of National Unity, headed by Syriza and Mr Tsipras. We might even see the return of "V for Varoufakis".

The Loan Sharks

The Loan Shark enforcers are in a difficult position and must decide which will be worse, general rebellion across the Zone from a "saved" Greece option, or a punished Greece facing more pain as a warning to France, Spain and the rest. It must be difficult to know that whichever choice you make, in order to save your own stash of dosh gained through screwing Greece in the first place (the lenders AND the Greeks who did the deals), more suicides, closed businesses, lost futures, are on your head. But hey, you were (and are) just "doing God's work".

So there is no way out for any of them. Save Greece, lose the Eurozone. Kill Greece, save your stash and kick the dead-Eurozone can into the next guy's term in office. Then, like the Dark Lord Cheney, you can blame your unmitigated disaster on the next poor schmuck.

Greek Bankers and former MPs are going to jail

This might just be Syriza's "way out" of the Grexit, and the way they can stay in the Euro, while destroying PASOK and Nea Democratea's (ND) ability to regain power. Earlier this week, on 17th of June 2015, a special committee of the Greek Parliament released their report, and in so doing, have put Greek bank executives, Finance Ministry heads and MPs from the former ruling parties on notice: you have iron bars in your future.

Rewind to earlier this year, when Syriza established a Parliamentary Committee, the “Debt Truth Committee” to determine how much of the €320 billion debt is legal, and recommend how much of that debt to unilaterally cancel as illegal. On the 17th the committee reported their findings. In perhaps the biggest non-surprise of the saga, the committee has reported that the "Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious."

This provides the Greek Parliament with a legal opinion to allow them to abrogate the loans. Wipe the slate clean. Clear the ledger. Stop the payments. Thank you, it's been fun.

This also gives the Greece government the authority to arrest Greece Finance Ministry officials and politicians. And under EU law, the Greek government could issue an arrest warrant for IMF and ECB officials. Would an EU arrest warrant for IMF chief Christine Lagarde be honored next time she gets off an airplane in Europe?

The Troika's objective

As I posted a couple of days ago, the "end of history" crowd needs the elected government of Greece to fall, to ensure the myth of the eternal victory of liberal western capitalist democracy as the sole survivor of Cold War One (CW1).

"If we want to date the moment when the Atlantic liberal order lost its authority – and when the European Project ceased to be a motivating historic force – this may well be it. In a sense, the Greek crisis is the financial equivalent of the Iraq War, totemic for the Left, and for Souverainistes on the Right, and replete with its own “sexed up” dossiers." (from Ambrose Evans-Pritchard at the Telegraph of 19 June 2015) 

It is easy to listen to the Troika's rhetoric of Greece the Failed State and to assume that more and deeper cuts and systemic changes are required. It is also easy to assume that Greece has not changed, and is the laggard in Europe. Yet looking at the numbers and we see a country that has implemented systemic changes that would destroy any ruling party in any Western country, from France or the UK, to the United States.

Could France, Germany, the UK or the USA cut its government payroll by 28%? Could any of them cut their average pension by 61%?

As Evans-Prichard goes on to say "We all know the argument. The EU is worried about political “moral hazard”, about what Podemos might achieve in Spain, or the eurosceptics in Italy, or the Front National in France, if Syriza is seen to buck the system and get away with it." All the while forgiving and forgetting the Moral Hazard that is incumbent in the IMF, ECB enforcement of the original loans and lending (investing) in Greece.

The price

With the loans being declared illegal, Syriza now goes into negotiations early next week looking to see what the Troika is willing to bring to the table. If the only things on offer are more years of hardship and continuing a program that "directly affected living conditions of the people and violated human rights, which Greece and its partners are obliged to respect, protect and promote under domestic, regional and international law" (Exec summary, Chapter 6) , then Syriza walks away, declares the loans void, and says "see you in court".

Greece would not even need to leave the Euro, as it will still be the legal currency of the country. There will be no need for a New Drachma with an instant 50% devaluation. Euros would continue to flow through the economy, and Greece's primary budget surplus would make it, theoretically, one of the better performing governments in the Eurozone, if not the world.

Suddenly, while Greece will be locked out of international capital markets, the immediate need to access those markets to service the debt will disappear. Not that simple of course, but a much stronger negotiating position.

Syriza's "get out of jail" card

For Syriza to stay in power, they will need an "out" to demonstrate to two constituencies that they represent the break from the past.  

They also need to deepen their roots throughout the Greek bureaucracy. After all, after 40 years of sharing power between PASOK and ND, all ministries, especially Finance, are stocked with bureaucrats who know how to please moderate socialists and moderate conservatives, but most of all know how to outlast whatever political party is in power. Just like almost every Western capital city.

Syriza needs to clear out the functionaires more closely aligned with the two (formerly) major political parties, and replace them with economists and functionaires aligned with a leftist socialist economic agenda. 


Syriza's "go directly to jail" card

What better way, then to frog-march to jail the ministry functionaires who wrote the papers that supported the politicians who negotiated the deals that the functionaires in Athens and Brussels (and Washington) then agreed. As long as those functionaires remain in place, more papers will be written demonstrating why the previous papers represented the only way forward. For syriza to make any progress, they must ensure those papers are never written. How better than to fire the functionaires (on the grounds of course, of #1 the functionaires committed illegal acts and #2 Greece still needs to streamline the bureaucracy and therefore must cut heads).

Of course, this is not exactly in the individual best interests of the functionaires - thus the importance of the “Debt Truth Committee”.

If the Committee states that the loans were illegal, as they have, then Syriza has all it needs to remove the functionaires pending trial. And to arrest and smear any sitting MP from PASOK or ND who was in any way involved in negotiating, speaking in favour of, or voting for the bailouts. 

So Syriza, the legitimately elected representatives of the Greece people, will negotiate for reductions in the debt burden, while at the same time shoring up their longer term position in Greece itself by surgically removing the functionaires who work to undermine them from within the ministries. They will try the politicians and former MPs who voted for the bailouts. As with Iceland, we will see what democracy really means, the democratically expressed will of a people translated into real pain for those who screwed the people.

Wolf! Wolf! Wolf, and Moral Hazard

Wolf

Having been wrong about the Grexit date of 9th May 2015, and having written again about why it is actually in the best interests of Greece based on other countries' experiences, it is time to call "Wolf!" again. Boring, I know, but "Wolf! Wolf! Wolf!".

Or, "Grexit! Grexit! Grexit, and Moral Hazard!"

There, I've said it. Now why do I keep saying it?

Syriza was elected, and they are a political party, and they will implement to the extent that they can, their agenda. From the Syrisa perspective, the ongoing Greece-Troika-EU dance that has become oh so tedious has two purposed; ensure that the Germans will reject or refuse to put any viable plan on the table, and ensure that EU's  (and Toika's) willingness to inflict massive and almost perpetual pain on the Greek people finally reduces the percentage of Greeks who say they want to stay in the Euro.

From the Troika perspective, it is clear that, like good loan-shark enforcers, the Troika will be happy to see every last penny extracted, every last asset liquidated, before in the end suggesting that there is one way-out left; suicide. According to the New York Times reported on 25 May 2015, "As for the hospitals, even though they are taking in twice as many patients now, their budgets have been cut to the bone. In the first four months of this year, health officials say that the 140 or so public hospitals in Greece received just €43 million from the state — down from €650 million during the same period last year."

The suicide that the Troika would like to see is the suicide of Syriza, those nasty, far-left socialist / communists who also happen to be Greek nationalists. So we are now in a battle of wills between the "End of History" with it's ultimate victory of liberal capitalist democracy and a miserable rearguard of that failed socialist philosophy that has no future.

The problem with this narrative, like all simplistic narratives, is that the situation is of course far more complex, and is one that strikes at the heart of the presumptive winner in the game of history. Capitalism is failing. Liberal democracy is failing. Sure, it remains the now-dominant political-economic narrative, and will remain so probably though the coming crisis (no, not the Greek one, the real one).

Moral Hazard

Greece is a reflection of the Moral Hazard that has engulfed the capitalist system, with Too Big To Fail (TBTF) banks, but Not Big Enough To Save countries. When the final choice must be make, the Troika and virtually all Central Banks will  impoverish and force a country to fail, rather than allow the poor lending decisions of the banks and IMF to reap the reward of poor investing decisions.

Moral Hazard is the concept that if an entity (or an individual for that matter) knows that they will be able to "get away with it", be it murder, theft, or simply poor lending and investment decisions, then there are not impediments to that unacceptable behaviour. In central banking and regulatory context it means the importance of demonstrating that no business is TBTF, because to admit that the business will not be allowed to fail will simply encourage "Moral Hazard" or behaviours that are ultimately counterproductive to the business (or the counter-party) to the point of damaging the business.

In the case of Greece, one side of the Moral Hazard has been the implicit expectation that no matter what happens, the money "loaned" to Greece will be repaid. The other side of Moral Hazard is that Greece sought and took loans when it knew that it was taking out loans that were well beyond the ability of the Greek economy to repay.

Until the IMF, ECB, national Central Banks and national governments print money, buy bonds, and run their countries at significant budget deficits, there will be Moral Hazard. With Greece, all can see the future, they just aren't willing to look.