A Question of Collateral
"Some debts are fun when you are acquiring them, but none are fun when you set about retiring them"
- Ogden Nash
Dear <<First Name>>,
With the world's central bankers quantitatively easing the watering holes of Jackson, er, hole, it seems only fair to have a quick chat about collateral.
Finland, that fine warrior nation of motorsporting excellence, has an intriguing new government. The Finns are challenging the money for nothing benefits culture now pervasive at both individual and even state level by demanding some form of collateral against the next tranche of the Greek tragedy soon to be dramatised as the "Never-Ending Debt Story." (Well at least the latter might return a few cents to lenders and create an asset that actually makes money). A surreal concept? Well, perhaps slightly but then again the entire EU suicide pact that is the current self-inflicted Euro crisis rather runs to a surreal pattern. As always there is nothing more frustrating than being a fan of European open markets than actually watching what often happens in action (or rather what often happens through "inaction" on the part of the leadership vacuum of Euro- nomenklatura). I had the pleasure of visiting Greece for the (as ever, unmissable) FESE conference in June where the European exchanges federation ran a truly top tier event - as per usual I might add. The gala dinner at the Acropolis museum was wonderful, complete with a direct view across to the marvellous Acropolis itself. However, the earlier guided tour was, frankly a tad surreal. As befits all great crumbling edifices, there was a delicious irony to the guides' discussion of the (presumably unencumbered - at least so far) assets in the museum. To put the tour in context, the guest keynote speaker had just cancelled as he had resigned as Finance Minister that day, such were the prevailing problems in the Greek economy. Commissioner Bart Chilton of the CFTC was looking a touch short of sleep at the dinner, largely because the ongoing tag-rioting competition outside the Parliament had robbed his somnolent hours of anything approaching peace. This wasn't downtown Tripoli during the hunt for "Qaddhafi Duck" but it was not exactly a normal capital either.
So as we toured the classical artefacts in the magnificent new Acropolis museum, it became clear that the entire Greek monumental psyche is emotionally scarred. As befits folk with their focus on a couple of millennia ago, they were clearly in denial about the contemporary events tearing apart their civilisation. Then again I presume they were government employees so it was largely in their short-term financial interests not to have much of a clue about real world economics. From one intriguing shrine to another fascinating statue, the message remained the same: "Those evil Brits have stolen our stones and we demand them back." Frankly this ongoing cri de coeur got right up my nose. I am no big apologist for empires per se and in fact "Great Powers" have a pretty appalling track record in doing the right thing (from all manner of actions in previous centuries to the shameful folly of partitioning Serbian sovereign territory sanctioned and propagated by the likes of German, Britain, USA, France and Holland a few years back). However, at the same time, complaining that you have lost your marbles at precisely the moment when the nation has indeed lot its sense of shame, perspective, and indeed every other aspect of its 'marbles' (in the patois of psychological well-being) is as good a sign as any that frankly the hideously bloated Greek public sector are living in a cloud cuckoo land even above and beyond that of the great bloated whales of the public sector elsewhere in the west…
So, the Finns are now demanding collateral for their loans and frankly I think it is time to return to a very simple principle of sovereign debt repayment. The Greeks can't pay, and they have little chance of getting their accounts in order (a genuine tragedy for those commercial Greek folk in the private sector - for you my heart genuinely bleeds). However, the rest of the nation is in a form of Stockholm syndrome and must come to terms with some simple facts of economic life.
Given that several major Eurozone nations already sanction the division of territory, that ought not to be problematic. More significantly, there are clear examples of this during history - the Principality of Monaco which once stretched from the rock of Monaco to the (now) French border town of Menton was rescued from a poor olive harvest by France with the territory being downsized to a microstate little larger than Central Park in New York, in order to help the Prince pay his debts. It seems only fair that such solutions are made available to Greece now.*
Therefore, the solutions for Greece going forward are simple:
1) Sell the country to private equity. Hey they are masters of turnaround and understand extreme leverage, was there ever a nation made so perfectly for them?
2) Bailout the nation with coherent collateral. I still favour the concept of creating a network of dynamic capitalist islands. Let the bailout nations have an island each and permit others (e.g. the UK Channel Islands and Isle of Man) to create new dynamic havens in sunnier climes). Naturally, the UK can take a smaller island in lieu of it already having the Elgin Marbles so as to placate Greek sensibilities.
3) Leave the Eurozone, default and let the Northern Europeans bail their own banks out where they have been poor stewards of their cash (actually I would much prefer they were given a proper "Schump Thump" but the politicians have no stomach for abandoning the bosom of their large corporate banking 'partners' - just who is the hostage and who the victim of Stockholm syndrome in this economically destructive relationship would make a great doctoral thesis methinks…).
4) Keep on paying and eventually the Eurozone itself will implode… (this is also known as the "none of the above" answer on multiple choice questionnaires) perhaps taking the Euro and the modern EU with it...
Returning to options 1 or 2, all those committed to this bailout whether in the Eurozone, the EU or beyond (oligarchs welcome), can be given territory amongst the myriad of Greek islands and from there I truly believe a dynamic turnaround can take place. At the same time, to encourage the Greek mainland to reform, they ought to receive a pre-emptive option to buy the islands back in the case of their being resold or Greece regaining its prosperity.
Meanwhile, the Finns ought to love their new haven in the sun and the time honoured principle of territory for debt would be maintained, as has been a regular feature of European history in (e.g. the San Marino/Italy takeover of recent times).
As ever, it has been a pleasure talking at you, have a great weekend.
*Regular readers of my missives dating back a few media types may recall I actually proposed that France sell this territory back to Monaco a decade or so ago to permit them to actually enter the Euro zone legally as opposed to bending the rules to be permitted to enter 'legitimately.'
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It’s summer so I am at home in Monaco but thanks to a lack of political leadership in Europe, there have been ample opportunities to speak with the media. For my most recent videos from RT News channel, have a look on my newly revamped web site: www.patricklyoung.net.
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About This Newsletter
Patrick L Young is the author of several financial market books
such as "Capital Market Revolution!" and
"The Exchange Manifesto" His Op Eds have been published in most of the world's leading financial media such as the Financial Times and Wall Street Journal while he has appeared frequently on BBC,CNBC, CNN and other digital media throughout the world.
My expertise is, (in no particular order!) exchanges, derivatives, market infrastructure and financial centres, as well as emerging markets. I can claim modest provenance as an early adopter on the web, having published various online magazines along with other WWW ventures since 1995. Nowadays I enjoy a varied portfolio of advisory work (most notably for investors in exchanges) but along the way I have done just about everything from multiple financial start-ups through to advising government and other stakeholders in financial centres the world over. I also indulge in some entrepreneurial projects too. After more than 20 years in finance some folk might think I am due a spot of remission for good behaviour. I think it is clear from this bulletin, my passion for markets remains as keen as ever!