“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” – Alexis de Tocqueville
I was recently in between books and in the mood for some entertaining non-fiction which led me to Michael Lewis’ latest book, Boomerang: Travels In The New Third World. I was eager to escape and vicariously live someone else’s life. Yet, instead of learning how to protect a quarterback from a blind side blitz or sitting as a fly on the wall as a handful of contrarian investors bet heavily against the housing and credit market bubble in the late 2000’s, I was ricocheted around the globe to observe the financial meltdown occurring in Europe and the US as sovereign debt crises threaten to turn their currencies into monopoly money.
Not since reading The Exorcist had I been unable to sleep, wide-eyed into the darkest hours of night drinking in this black comedy of hubris and denial. I kept talking to myself out loud and waking up my wife, “No! Spain! Don’t take that loan from the ECB, you’ll kill yourself!” The tension of Lewis’ book reads like the script of a slasher film as you try trying to figure out how many of the hapless characters are going to end up as worm bait buried in the back garden.
When I transferred to London in April, 2000, the world was heralding the creation of the European Economic Community. We were astonished at EEC member’s abilities to put aside differences for the sake of a common currency – the Euro. Like adolescent girls, Europeans had fallen in love with the notion of a common currency but did not really believe it required anything beyond kissing. The idea of diluting their national identities for the sake of a binding and stricter monetary matrimony – especially one that has Germans involved was not really considered. Now, after a decade of honeymoon profligacy, the hotel bill has finally arrived. Europe’s reaction to its mounting debt crisis can best be summed up by the acronym “FEAR” which can stand for “Face Everything and Recover” or “ F@*$ Everything and Run.”
The member nations of the EEC themselves are odd bedfellows. They are also, for the most part, broke. To the south, there are the “Wimpies” – countries who assured their new partners that they had plenty of cash in the bank but always seemed low on lunch money – telling everyone that they would gladly pay them Tuesday for a hamburger today. To the North, there are the “Stoics” – nations who spend and laugh less but supported the concept of a common currency so they would have a sunny place to hold meetings during the winter. The fact that each nation had dated, divorced or lobbed grenades at one another in the last one hundred years, seemed to have eluded its architects.
The contagion of borrowing, spending and speculating while all the while coming up with new generous public programs to guarantee incompetent governments reelection spread to Ireland, Portugal, Spain and Italy. In late 2009, a French polemic, I Never Met An Entitlement I Did Not Like became a best seller – partly because of its criticism of the profligate spending by the smaller EEC nations. One French Finance Minister was quoted as saying, “Mon Dieu, only we should be allowed to spend money like this.” Portugal was quick to retort, ” Why should the French have all the fun. We plan on using the money to build a huge Catholic theme park at Fatima. It will be a miracle!”
Furious and confused by his own nation’s lack of fiscal restraint, French President Nicolas Sarkozy made a strident speech on national TV but made the mistake of saying “we must think of austerity” when he meant to say “think of posterity”. He was promptly voted out of office the next day.
Meanwhile, Chancellor Angela Merkel and the judicious Germans have been watching this drachma drama from a distance. While Southern Europeans prefer to avoid discussing the logistics of fording this dark river of debt until they are literally on its banks, the Germans are quietly mapping the next 500 kilometers and do not like what they see. After all, the European Central Bank is responsible for the Euro Zone’s financial stability of the European currency – and Germany holds much of this debt. Yet, austerity is not happening in many nations who share the euro currency with the Germans. Still sensitive over their bad reputation for plotting the extinction of most of their neighbors, the Teutonic Knights have laid low, sitting in their back yards listening to polka music on their head phones, doing the debt calculus and getting worried.
Things got worse last week when the Greeks threw out their current government- a legislature that had encouraged them to pay taxes, accept cuts in entitlements, tolerate reductions in the minimum wage and understand that not everyone can retire with a full pension at the ripe old age of 25. The new Prime Minister got elected on a platform that one must first be shaving before they are eligible for a pension which seemed acceptable since most Greek men and women have facial hair and are shaving by age 10. Many Greeks were outraged at their former PM’s suggestion of tightening their belts since he had gotten so fat that he had stopped wearing belts in 2005. The new Prime Minister is now attempting to form a collation government – the equivalent of trying to build a space ship out of newspaper and jello.
To add ouzo to the fire, Interpol foiled a plot last week by the new French government of Francois Hollande to sell the Greek islands of Mykonos and Cos to the Saudis for $1T euro and a promise that no German woman over the age of 40 would ever remove her top on a Greek beach again. French operatives posing as Greek officials had agreed on a price and had already transferred Saudi funds to the French National bank crediting Hollande with finding $1T euro. It could have gone down as the greatest swindle since gthe purchase of the Isle of Manhatten when one of the “Greeks” heard a car backfire and immediately raised his hands. As one Saudi security officer put it, “Greeks run away but French tend to surrender. We knew something was not right.”
Lewis goes on to warn us that the sovereign debt crisis is hardly a “euro” thing. Consider the sad saga of Iceland, whose prosaic national occupation with fishing lost its luster when Icelandic men realized that blond supermodels preferred dating financial professionals who spent money like drunken sailors and did not smell like cod. The problem was that no one in Iceland really understood the world’s complex financial markets and after three years of borrowing, buying high and selling low, the proud, independent nation of mariners went broke.
The creepiest thing about Michael Lewis’ book is it sounds a lot like America. In his last chapter, Lewis drops us helplessly into the middle of California – the world’s largest economy and now America’s number one candidate to enter The Biggest Financial Loser contest as it struggles to shed $ 16B of budget deficit. If the state of California were a man, he could have three wives and they would never meet. Alas, America, the all-powerful, young invincible that fears no one, and believes like our teens that bad stuff only happens to other people, has wet its own bed.
As I rant about fiscal conservatism to my Australian Shepherd, he licks my hand indicating support as long as I do not cut his kibble. It seems everyone agrees with the notions of sacrifice, as long as it is someone else doing it. And to make matters worse, we keep sending the same jellyfish back to Washington to assume their place in a two-party skirmish line that is at odds over how to achieve the magic of stimulus without tripling tax revenues, reducing public spending, ensuring everyone owns a home, has health care and a loaf of multi-grain bread on the table.
Yes, I admit to not being a math major but the corrupted calculus of our Congressional expenditures in the face of $15T of debt and $38T of underfunded Medicare benefits doesn’t work for me.
But hey, it’s all Greek to me….