Thoughts by Bob Cochran
When clients ask me to explain the Greek debacle, I have likened it to a financially dysfunctional family. We all know what they look like. When times are good, they spend a lot of money to acquire stuff, much of which they really don’t need. They accept every credit card offer in the mail, and proceed to run them up to the max. They can make the minimum payments since they have good jobs. They don’t save a dime for retirement, or if they do save it’s a bare minimum. They have no emergency cash reserve fund. They have a big mortgage on a home that is much grander than they need, and they have two car loans on pricey autos.
The other family has an emergency savings fund to cover 6 months of cash flow needs. They have two credit card accounts, but pay the balance each month. They have two cars, one of which is an 8-year old sedan, the other a sensible family car bought because of its safety features, and it is on a 3-year lease. They max out their 401k plans at work almost every year. Even when things are tight, they put enough in to get their employer’s match. They converted their 30-year mortgage to a 15-year loan twelve years ago are are excited to know they will have no mortgage in 3 years. That cash will be put into savings for retirement.
When tough times hit the first family, they go to their relatives, the second family, and ask for help. The second family, being assured the loan they give their cousins will be repaid on time, take money from their own savings. Two years go by, and the second family has received no payments on their loan to the first family, not even interest. When they ask the first family to at least pay interest on the loan, the first family tells them they are struggling to make ends meet, that they have cut back on expenses, and that if the second family will only give them more time and loan them some more money, they promise to repay them in full in three more years. Of course the second family fears the first family will lose everything if they do not help, so they loan them more money.
This time, the first family takes out four more credit cards and runs them up to their limit, since they cannot possibly ask their family members to give up some of their goodies. It doesn’t matter that both parents have lost their jobs. It is important that their children still be able to go to private schools, drive their nice cars, take vacations, ride their horses, and eat at nice restaurants. They have taken out loans on both of their 401k accounts so that almost nothing remains.
Three years later, the second family demands the principal and interest on all the loans be paid immediately, the first family says they cannot possibly repay the debts. “We have no money to pay you. We cannot even pay our credit card minimum payments. Our children are suffering. How can you be so cruel? If you don’t forgive the loans you made to us, we are never going to speak to you again. And, by the way, can we have some more money?”
Does this sound familiar? Welcome to Greece (first family) and Germany (second family). Yeah, it is really the eurozone, but we can agree the eurozone is really Germany?
Greece wants their citizens to think Germany is so cruel to Greece. Don’t they realize how hard Greece has worked to get into the place they are in now? They cannot possibly ask their family members to go without any more, because the family members might discover how they have been taken to the cleaners by lousy parents for years and years. It is amazingly galling that Greece continues to come begging for more after squandering everything they have already been given.
So does the second family simply decide to accept all of this as a bad experience, wash their hands of it, and move on? Does the eurozone (i.e. ECG, IMF, etc.) realize the loans will never be repaid, and push Greece out of the family? Does Greece, sensing impending doom, blame all of their problems on the mean eurozone, fold up their tent and leave?
Some commentators have suggested that since virtually all of Greek debt to the eurozone is owned by the ECB, IMF and other bailout vehicles, not individual banks, it is much easier to write off and let Greece go on their own, down the tubes, goodbye. The current Greek government has done a great job of portraying themselves as victims of the eurozone, and they have popularized this very well, too. The Greek people, at least the majority of them, seem to have no clue as to what crappy government they have had for generations. There is no good solution to this mess, but there are solutions.
- Goodbye, Greece. Please leave the eurozone, and don’t let the door hit you in the butt.
- No more loans, Greece. We forgive your debts. Find out a way to fix your mess. If China and/or Russia want to help, God bless them.
- You can stay in the eurozone, Greece. But you can no longer use the euro as your currency. You have shown you are not responsible. Go use your worthless drachma.
- Create your own solution.
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