EUROPE’S DEBT NIGHTMARE

By

Spyros Pavlou, PhD

It’s getting worse as Europe’s economies face unsustainable high costs to finance their debts. The debt numbers are staggering ¹: Italy ($ 1.4 trillion), Spain ($ 1.1 trillion), Ireland ($ 867 billion), Portugal ($ 286 billion), Greece ($ 236 billion). Portugal and Greece are already forced to seek bailouts. A November 29, 2011, Associated Press Report estimates that the Greek National Bank will lose $ 1.8 billion from a voluntary bond exchange with the country’s crisis-hit government by the end of this year.

If some member euro-states cannot meet their refinancing needs, i.e., cannot cover their borrowing costs, the euro-zone could breakdown, the pillar of European stability would then disintegrate, and its currency would enter into an unavoidable death spiral, which would result in a world economic catastrophe…

But hold on, why is the euro in such a dire state to start with? Well, it began with the cardinal sin in uniting Europe with one currency. Countries like Italy and Greece entered the monetary union with bigger deficits than permitted by the treaty that created the currency. Let’s take Greece for example. No one dares to give a straight answer as to, how and why the country’s debt is out of control? Who has the “balls” to admit what the real reason is for the dismal economic state that Greece is in? Certainly, not the Greek Government through its Treasury Department or Goldman Sachs who helped the Greek Government to mask the true extent of its deficit with the help of the so-called cross-currency swaps (CCS) ².  

In a swap, government debt issued in dollars or yen, can be swapped for euro dept over a certain period of time, and exchanged back into the original currencies at a later date. Such transactions are part of normal government refinancing. In actuality, Europe’s governments obtain funds from investors around the world by issuing bonds in various foreign denominations, e.g., yen, dollars, Swiss francs. Years later the bonds are repaid in the original currencies.

However, to control runaway debt there are strict rules that must be followed. These are the Maastricht ³ rules which postulate that for any euro-country member, the total budget deficit limit of 3% GDP must not be exceeded, and that the total government debt must not exceed 60%. The international banking community knows that well, but it is also tacitly recognizes that the Maastricht rules can be circumvented legally through swaps. 

For Greece, the Greek Treasury Department together with the savvy, but tricky bankers of the investment bank Goldman Sachs devised a swap with fictional exchange rates so that Greece would receive a far higher sum than what the actual euro market could afford. Therefore, the Greek Treasury-Goldman Sachs combo, through creative accounting (or “financial engineering”, as it is otherwise known in the economic lingo), ignored the Maastricht rules and artificially reduced the value of the Greek deficit.

In 2005, Goldman Sachs sold the interest rate swap to the National Bank of Greece (NBG), the country’s largest bank, and charged NBG a hefty commission for the deal ²‚⁴.

Although it is widely believed that Greek finances have always been in a mess, it was Goldman Sachs that failed to explain the intricacies of this financing web to the public.  Between 2005 and 2009, the deficit each year had been far greater than the 3% Maastricht limit. In 2009 it exploded to over 12%.

Let’s get to the quick. Could greed have crept into the picture? We should not forget Lord Acton’s famous quotation “Absolute Power Corrupts Absolutely”…

______________________________________________________________________

¹ B. Marsh, Europe’s Web of Debt, The New York Times, 5, 2010.

² B. Balzli, How Goldman Sachs Helped Greece to Mask its True Debt, Der Spiegel, 2, 2010.

³ M. Buti and G. Giudice , European Commission, Maastricht’s Fiscal Rules at Ten: An Assessment, 3, 2002.

⁴ M. Mehra, Banks, Bonuses, Goldman Sachs, and Swaps – Institute of Directors.  CDS – an insurance contract, http://.iodoline.com/Articles/Banks.doc

WARREN BUFFET'S PROPOSAL FOR CONGRESSIONAL REFORM

By

By Spyros Pavlou, PhD

I love Warren Buffett. He is the only voice of reason and good sense in the midst of the chaotic economic decision making and political incompetence that is plaguing our country. Buffett’s proposal was posted on October 16, 2011 by Regis Tremblay of World Press,  and quotes Warren Buffett’s deliberations during an interview conducted by CNBC regarding the US national deficit. Mr. Buffett claimed:

“I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election”.  Mr. Buffett’s ingenuity is admirable.

Warren Buffett articulated his ideas about the need to reform the US Congress in a fast and efficient way. He suggests bundling these ideas under one name: Congressional Reform Act of 2011. It appears that current polls posted by the news media suggest that the American people are ready to implement such a bold initiative.

Here is Mr. Buffett’s recipe for “fixing Congress”:  

1.    “No tenure / No Pension”. A Congressman collects a salary while in office and receives no pay when they are out of office”.

2.    “Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

3.    “Congress can purchase their own retirement plan, just as all Americans do”.

4.    “Congress will no longer vote them-selves a pay raise. Congressional pay will rise by the lower of CPI or 3%”.

5.    “Congress loses their current health care system and participates in the same health care system as the American people”.

6.    “Congress must equally abide by all laws they impose on the American people”.

7.    “All contracts with past and present Congressmen are void effective1/1/12. The American people did not make this contract with Congressmen. Congressmen made all these contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s), then go home and back to work”.

“THIS IS HOW YOU FIX CONGRESS!!!”

These types of messages posted by credible and highly respected citizens such as Warren Buffett should be propagated to all people that are starving for alternatives means to move the country forward, so that all can aspire to reach the ultimate level of prosperity and happiness.

For further information on Warren Buffett’s, How to fix Congress you may contact Regis Tremblay at:

http://regtremblay.worldpress.com

The Gander vs. the Goose Controversy

THE GANDER VS. THE GOOSE CONTROVERSY

By

Spyros Pavlou, PhD

Here we go again; his words against hers. He said, she said. He is right, she is questionable. He is credible, she is not. He is powerful, she is not. He is influential, she is not. He is wealthy, she is not. He is believable, she is not.

How can anyone in their right mind believe what these women say?

That’s what men wonder when they read about the sexual harassment accusations claimed against Herman Cain by two women, Sharon Bialek, and Karen Kraushaar. Obviously, we still live in a world of gender inequality and prejudice,

“What’s good for the gander is not good for the goose”.

Although it’s tacitly recognized that facts are facts, and perception is reality, it appears that perception favors the gander, not the goose. That’s how it is in a patriarchal social environment; men get the benefit of the doubt, women don’t. I know, I was made and raised in Greece…a male dominated society.

It’s despicable to witness a candidate aspiring to hold the highest and most honorable position in this country act like a moral vermin of sexual behavior towards women. All four accusers cannot be insane and be driven by ulterior motives, as Mr. Cain insinuates.

It is unconscionable that we continue to strip women of their dignity. Mr. Cain has to come clean, and have the decency to admit his shameful behavior. If he is truly a “serial sexual harasser”, he does not deserve to be president of this country. 

  

 Experiencing the World Economic Quagmire: Is the Quicksand devouring us?

By

Spyros Pavlou, PhD

I recently saw an interesting graphic published by the NY Times. It was entitled “Europe’s Web of Debt” Well, I call it “The Vicious Pentagon”. It depicts graphically the moneys owed between five European countries with shaky economies. Each country is shown as the apex of a pentagon. The US was not included in the graphic, but if it did, I would call it the “Vicious Hexagon”. 

To put this analysis into perspective, I included the US as part of the debt-per-capita comparisons. The table below summarizes the total Debt-Per-Capita for each of the five European countries including the US as a point of reference.   

Country         ªDebt-per-Capita ($)           *Population (Millions)    ¹Tot Debt (Billions)

                                                                         

Ireland                  206,429                                 4.2 º (0.0137)                                    867

USA                      38,737                               307.2 (1)                                         11,900

Spain                      27,160                              40.5 (0.132)                                      1,100

Portugal                 26,729                              10.7 (0.035)                                         286

Italy                         24,096                               58.1 (0.189)                                      1,400

Greece                   22,056                              10.7 (0.035)                                         236

*Population figures are as reported in the CIA World Fact Book

¹Total Debt is from the NY Times figures

ª Debt-Per-Capita is computed as the Total Debt divided by the Country’s Population

º Values in parentheses are the fraction of the country’s population as compared to the US

It’s surprising to see that the US ranks behind Ireland, and Greece appears to be the most fiscally responsible among the countries examined here. Economic induced riots and public unrest are occurring in all countries irrespective of their size.

This simple mathematical exercise confirms that the world is financially interconnected, and it really doesn’t matter which country one lives in. So, we all appear to be in dire straits economically. Obviously, debt is a universal disease that should be exterminated immediately if we are to survive as a world entity.

AMANDA'S WEDDING: A LIFE MILESTONE, 08212011

AMANDA’S WEDDING: A LIFE MILESTONE, AUGUST 21, 2011

I want to propose a toast to Amanda and Steve.

Most of you know that Amanda does not make decisions easily. Amanda is a deep thinker. She is a strong and independent woman. Amanda has a very unique and rear attribute: she has a great childlike innocence.

Amanda, thank you for the opportunity you have given me to be your father. I was proud of you since the second you arrived on this world, I was proud of you over the years I watched you grow up, I am proud of you to enjoy you as the complete woman you have become now, and I will be proud of you for the rest of my life.

Steve, I love that you honor my daughter. I am impressed with the initiative you showed by calling me several months ago to invite me for lunch. I was suspicious that something was cooking. I was thrilled when you asked me for my daughter’s hand. But at first I thought that I shouldn’t make it easy for you. So, I developed a lot of questions to confirm your intentions.  But after I looked into your eyes, your gaze disarmed me.

“He is an exceptional salesman, or he is genuinely sincere”, I thought. I selected the second option.

Steve, I am confident that you will love and care for Amanda with honor and respect. So, to my new son I toast with my warmest wishes for a happy life with Amanda.

And to all of you, the community of family and dear friends, let’s raise our glasses to your commitment that you will love and support Amanda and Steve always.    

MY GREEK HERITAGE

MY GREEK HERITAGE

By

Spyros Pavlou, PhD

I wanted to share with you a quote from Nikos Kazantzakis, Report to Greco. Kazantzakis is a renowned Greek author. 

The economic turmoil that has gripped Europe the last few weeks is dominating the international news, and Greece’s financial Crisis (see my previous blog) has distracted people’s opinions and perceptions of what Greece is today; not really too different from Kazantzakis’ description.

“I was returning to get to know Attica, that is what I thought, but I was returning to get to know my soul; in the trees, in the mountains, in the solitude I sought to find and to know my soul – all was in vain; my heart did not pulse, an indisputable sign that I was not to find what I sought.

One day only, just one noon, I thought I found it. I had gone alone to Sounio; the sun was burning and summer had come, the wounded pines were bleeding resin and the air was redolent with its aroma. A cicada came and sat on my shoulder and for some time we walked together; all of me smelled of pine, I had become one.

Suddenly, as I walked out of the grove of pine trees, I saw the white columns of the Temple of Poseidon and in between them, the glittering, dark blue, and the blessed sea. My knees buckled. I came to a standstill. ”This is Beauty”, I thought, “this is wingless Nike, the apex of joy, man cannot reach anything higher. This is Greece…”

Nikos Kazantzakis (Excerpt from Report to Greco)

US AAA Rating Downgrade: much to do about nothing?

Everyone knows the dire straits the world economy is experiencing, so why is everybody upset with the reduction of the US credit rating? The politicians and the news media are screaming “The sky is falling, the sky is falling", as history has shown nothing ever stays the same change is always good. We will weather this storm as we have others in the past.

The public is observing this perceived national tragedy in disbelief and the financial experts are telling us that the credit rating downgrade has a minimal impact on the US bond market, and there is no forced selling of US Treasuries.Therefore, trimming in repo markets or margins intended to protect lenders from daily price fluctuations are directly related to the price volatility of the treasuries not the downgrade.

Yes, the dollar is under pressure, there is no doubt that US bond yields will raise. As for the Euro-zone countries, the borrowing costs will increase (poor Greece). As I said in my previous blog, potential defaults may argue for the restructure of currencies  for countries like Spain, Italy, Portugal, Ireland, and Greece to avoid the imminent threat of a single currency existence.

Transition of global power might just go to China someday. So, get used to it folks, no business as usual for the global business community.

Growing up in a Patriarchal Society: What is good for the Gander, is it good for the Goose?

By

Spyros Pavlou, PhD

I am a naturalized American citizen. I live in Chelan, Washington. I was made in Greece by Greek parents in 1940; a war child born 8 days before the Italians declared war on Greece.

My mother was the pillar of stability in our family and gave me the self confidence I needed to survive the adversities of three wars. We endured the Italian-Greek War, the occupation of Greece by the Nazis, and the Greek Civil War. I was fourteen years old when the wars ended, and Greece resumed some degree of normalcy again.

My mother paid special attention to me during my infant and adolescent years. I was the only male descendant in the family, so my mother nurtured me, and raised me to be the proper son in the reality of a Greek patriarchal society. I remembered when she admitted to me that she loved my sisters dearly as well, but felt privileged to have me as her only son. When I became eighteen years old she said to me,

“Spyros, you are a man now, but don’t be like your father; I love him, but he is a victim of his environment, and pretends to be something that he is not. He is uneducated, but has money, because he inherited it from your grandfather. He has a good heart, he worked hard, he is generous to everybody, but he has poor judgment and business acumen. He likes to gamble and is a womanizer, like every Greek man I know. He is stubborn and never listens to me, because I am a woman…”

“You have to survive on your own. But in order to make it in this world jungle, you have to be educated. Go as high as you can with your education. Once you earn it, nobody can take it away from you. I want you to set your sights high. Greece is not where you want to be to carve your future. I’ll send you to the United States, because that’s where the opportunities are. I know I will lose you in the abyss of the New World, but promise me you won’t forget us…”

She was in tears when she said that. I kept my promise.

So, early on in my life I was in a quandary. In one hand, here is my father, exuding real machismo, pride, and strong ego in being a man. On the other hand, my mother was more educated, worldlier. She was talented in the arts, music and overall more refined. My father recognized her value to his own benefit, but he treated my mother and my sisters, as second class citizens.

It seemed that, “what was good for the gander was not good for the goose.” It just didn’t make sense…I loved my father. During the days of the war I adored him. He was my hero, my protector, my role model; I wanted to be like him. He could do no wrong. And then suddenly, everything changed. When I left for America, I didn’t know him anymore. He was self centered, told lies, and his world revolved only around him.   

I met a lot of women since I first arrived in the States. I loved women far beyond intimate relationships, may be because of my close bond with my mother and my two sisters. I could empathize with them, and understand them. I never felt threatened by a woman. May be because of my extreme confidence I had in myself. It’s ironic, but that confidence was instilled in me by my mother not my father.

I had a lot of male friends, but I found women more interesting, rich in emotions and feelings, authentic. I was able to relate to them easier than men. My relationships with women made me appreciate what they have to go through dealing with men on a personal and professional level. I developed a keen awareness of each woman’s uniqueness in self awareness, character, personality, mind, and spirit. 

Throughout my professional career, I found women to be more resourceful than men, more trustworthy, honest, intuitive, perceptive, and multifaceted. They were rich in emotions and feelings. I always felt that my association with women, personal or professional, provided me with empowerment for improvement and growth. Women were my best and most successful employees.

Although I was tormented by the dichotomy of my beliefs and deep feelings I had about men and women, as epitomized by my father’s and mother’s behaviors, I was able to maintain my objectivity in accepting both genders based on what they are as individuals. 

Meeting Laura, my wife, culminated in what I consider a profound relationship in mind, body, and spirit. I believe that although human beings are not made to live alone, they are made to live free. The freedom is acquired through continuous and conscious work towards improvement, and the respect and love we give to each other is learned, it doesn’t happen automatically. As the saying goes, we learn by getting older and we get older by learning.

Sharing the adversities and happy times we experience as a couple, confirms my belief that what appears to be good for the gander it can be as good for the goose…   

Greece's Financial Crisis; a Perspective

Greece’s Financial Crisis; a Perspective

By

Spyros Pavlou, PhD.

“Are you still proud to be a Greek?” somebody asked me a few days ago.

I answered with, “Yes”! It was 52 years ago when I first stepped on American soil, and in spite of all the chaos Greece has been in I still feel very proud of my Greek heritage. We Greeks have been a survivalist nation for thousands of years; we will weather the current crisis too.

What I we feel now is that our identity is at stake, because suddenly it seems the Greek people have lost some of their pride because of the financial crisis that is affecting them so dramatically.

Greeks have always been extremely proud people, some would call it a superiority complex because of the accomplishments the Greeks made in the ancient past. Now with the debt crisis weighing so heavily on the citizens of Greece their superiority is waning and a feeling of hopelessness ensues. What I see is a culture that feels like there is no solution.

“You Greeks are doing everything wrong”, the pundits say.

As an American-Greek I say really? Not everything. However, I don’t believe Greeks can rely on the glory of their ancestors any more. They have to learn the financial vocabulary of our times: bond spreads, income cuts, credit default swaps, austerity measures, joblessness, bailouts, fraud penalties. 

 As an outsider, what I see is that Greeks are saying, “It’s all Chinese to me”. They don’t seem to want to change.

The government has lost its people’s confidence by raising taxes, taking away benefits and lowering pay. Thousands are protesting by strikes, riots, and crime. This is causing public despair and anxiety.

In the past, demonstrators were comprised of enthusiastic youth brimming of patriotism and national pride because they were eager for change in society.

When I was a young student, I remember acting as a demonstrator in Syntagma square, the exact spot of the riots last month. I remember we were protesting against the British who were trying to quench the Greek revolt to unify Cyprus with Greece. That was in 1956, fifty-five years ago. The outcome was not what we intended, Cyprus is shared today, Greeks and Turks have it split, but our motives were legal, honorable, and peaceful.

Interestingly, today the majority of the demonstrators are middle class Greeks waving the blue-white national flag or wrapped in it. The protesters are angry and violent. Their way of living is at stake.

Last week I saw a demonstrator on TV who was a young Greek woman with short blond hair. She was holding a sign high above her head in front of the Parliament Building across from Syntagma Square; it read:

“Greek Politicians and their bosses are having a party with our money”!!

 On the bottom left of the rectangular white sign was a STOP sign with a yellow inscription on it

“The party is here”.

What I see is that modern Greeks are not winning financial wars; they don’t know how to. The history of Greece created heroes fighting physical wars. They were considered experts. As recent as World War II, Winston Churchill wrote:

“Hence we will not say that Greeks fight like heroes, but that heroes fight like Greeks”.

Today, I see that the Greek public is outraged because they see the injustice their government’s austerity measures are imposing on the people. Unemployment is at a record high, above 16%, and a deep recession is raging for more than 3 years. Where is the glory of the Greek Italian war? Where are the sacrifices of the resistance against the Nazis?

 Now, the demonstrators gather around the parliament building shaking their fists shouting, “thieves, thieves”, as the politicians decimate Greece’s welfare system.

Obviously, Greece as a Euro-zone member is not working. The economic interdependence of the members only ensures that each country gets caught in an economic death spiral, not necessarily a result of their own financial troubles. Greece, Italy, Portugal, Spain, Ireland, seem to be caught in a financial, “Tower of Vavel”.

With the real danger of the country ending in default, holders of the Greek debt may take large losses if any restructuring takes place.

Maybe for Greece, a national bankruptcy, an exit from the Euro-zone membership, a return to the old currency (Drachma) and its subsequent devaluation, could be the only option left for return to economic normalcy, eventually prosperity.