Greece's (Economic) Landscape in the Mist

Following the stand-by rescue package (loan amount attached, finally!) was formally introduced and agreed upon by all Euro-Zone countries and as the mist hanging over the Greek economic landscape appears to be clearing, one might wonder why it took so long for the member countries, particularly Germany, to hash out the terms of the package.

No least, the terms cannot even be described as lenient- any amount loaned to Greece shall be charged at or near market (?) rate, at the insistence of Deutsche Government. Indeed one can even call the terms harsh given that it is to be provided to a fellow member-country who shares a common market place and currency.

One explanation could be that, to use an analogy, it is an expression of tough love meted out by a regimented father figure to a child who has gotten use to irresponsible, lavish lifestyle.

Indeed, the metaphor of father-child relationship used in describing relation between Germany and Greece has previously been explored before: in a film made over 20 years ago by the Greek director Theo Angelopoulos called Landscape in the Mist.


The visually somber yet stunning film tells the melancholic tale of a pair of sister and brother running away from their home (and misery) in Greece in search of their father whom they believe is making a living in Germany. One of the most poignant sequences is the appearance of a tree (symbol of shelter?) in the misty horizon and the siblings, visibly tired after traveling alone for many days, begin to run towards the tree.

To understand the symbolism of economic dependence of peripheral EU countries, such as Greece, on Germany, one has to look at the geo-economical conditions in European countries that make up the Euro zone (i.e. countries that adopt Euro as common currencies) and its predecessors (i.e. European Community (EC) and, prior to that, European Economic Community (EEC). Because of its economic prowess, Germany or, prior to reunification, Western Germany has been the proverbial bread-earner. It has been doing so decade-after-decade by revving its export machine and running current account surpluses. The resultant capital inflows ensure that member countries get to tap funding relatively affordably and they, in turn, are generally running deficits.

Now that amidst the foggy environment- though less so compared to two weeks ago, the vision of a tree has appeared. the question that will be answered in the coming months is: will the shelter, in the form of the rescue package, be within reach and if so, will it provide enough coverage so Greece can get through the necessary reforming efforts and re-emerge as a competent sibling within the EU brethren.

One can certainly do better than looking for answer in the film... as it ends with an open-ending.

The Greek Echo

As reported by Bloomberg, it would appear that, as soon as next week, IMF will be formally involved with rescuing the plunging Greek economy. The world markets heaved a collective sigh of relief on Friday, as Euro and Greek bond prices rebounded from their week's lows.

One has to remember, however, that rather signaling as the end of the crisis, the combined efforts of IMF and EU to provide much needed finance and supports in economic restructuring merely mark the end of a chapter in an epic novel.

For one, Greece will have to go through the painful reforms as prescribed by IMF which depends on the political will of the government and the supports of its people.

Then, there is the contagious ripple effect. The Asian Financial Crisis is the case in point. Initially targeting the Thai baht as its peg to US Dollar did not reflect Thailand's economic position, market participants quickly trained their focus on its neighbouring East Asian economies after the baht was forced off the peg and IMF agreed to provide emergency funding in the Summer of 1997. Over the next 12 months, from Indonesia, The Philippines , South Korea, Hong Kong, Malaysia to Singapore, currencies and stock markets of each of these countries, one after another, were under attack.

It will therefore be very interesting to see if the episodes of the Tom Yum Goong Crisis in 1997 will be repeated and, if so, which market(s) will the Greek Echo reverberate through next? Afterall (and befittingly), the word echo came from the Greek mythology.

A Greek Dilemma

After the Easter break, Greece is again staring into the economic abyss. It is caught between deciding whether to swallow the restructuring medicines as prescript by its EU peers and IMF or to default on its debt obligation thereby earning some reprieve for a more gradual recovery course. The trade-off is between acute economic shock and international standing.

In a recent article , The Economist examined the two options, using past precedents. And it seems that defaulting, as undesirable as it sounds, could bring about positive outcome if executed properly (even though it concluded, in the case of Greece, such will not be the case).

The analysis brings to mind a line in an recent episode of FlashForward- When deciding if the team should skip the protocol and move forward with an investigation, an CIA agent said:

"It is sometimes easier to ask for forgiveness than permission."

The Canary is Singing

After a v-shaped rebound witnessed over the past 12 months, it seems that the world economy is finally hitting a road block . Bloomberg reported on 31 March that European inflation rate, at 1.5%, is hitting its fastest pace since December 2008 while unemployment rate breached double digits for the first time since August 2008.

As Europe, and the world's other major economies, keeps interest rate at historical low and maintains high level of fiscal spending without tackling the structural reform of the economy, stagflation will return.

The canary has begun to sing.

White Dogs don't Bite?

More than a year after the bankruptcy of Lehman Brothers and almost two years since the near-collapsed Bear Stearns was taken over by JP Morgan Chase, the U.S. Congress is finally proposing new acts to re-regulate the financial market. But it seems once again the politicians are barking up the wrong tree.

Two bills are being contemplated: In the House, Representative Ron Paul is pushing to audit the supposedly independent and apolitical Fed; While Senator Chris Dodd has unveiled his proposed financial overhaul bill that, among other changes, aims to take away the Fed's supervisory role.

While I think the Fed has had some mishaps over the years, it is certainly not the root cause and most certainly should not be the main target of the thrust of major legislative re-regulation that comes two years after the financial crisis erupted. Some of arguments, chief amount them are over-extended period of easy monetary policy and lax oversight on financial institutions, behind the proposed legislations may be valid, but they are at best secondary contributors to the near breakdown of the financial system experienced one year ago. The primary culprits are the too-big-to-fail financial institutions and their predatory behaviours.

How should the reform bills tackle the "vampire squids" (the term was used by Matt Taibbi in his famous Rolling Stone article to describe Goldman Sachs)? The answer can be found in another piece of legislation passed 76 years ago: The Glass-Steagall Act.

The year 1933 was disturbingly similar to 2009. The Great Depression, which culminated into the stock market collapse in 1929 and the collapse of the financial system in 1933 was deemed to have been caused by irresponsible commercial banking institutions that dabbled in inappropriate investment activities (sound familiar?). The Glass-Steagall Act was eventually passed to firewall commercial and investment banking activities.

To look further back into history, there was the Standard Oil episode in which the Rockefeller monopoly and its anti-competitive behaviors were deemed harmful to the economy and the nation. So the Sherman and Clayton Acts (collectively referred to as Antitrust Acts) were enacted at the turn of the 20th Century to specifically to deal with monopolies. If need be, the Acts allow, as in the case of Standard Oil and, later, AT&T, the government to break up the monopolistic entities.

It is therefore disappointing to note that with all the academic and journalistic research that point towards the failure of the system in that it engenders risky behaviors within too-big-to-fail institutions, the best solution as proposed after two years since first domino fell (during which the government allows hundreds of billions to flow into the pockets of executives and stakeholders who were responsible for the meltdown) is the reshuffle and cast an watchful eye over the Fed, whose only crime, at most, was dozing-off guard.

To explain my point with an analogy: After the house was raided by a gang of robbers, rather than to pursue and hunt down the perpetrators or to rectify the security holes in the system (e.g. bring back Glass-Steagall Act which was dismantled in 1999), it was recommended that the guard dogs be changed. The reason?

White dogs don't bite.

Origin of Crisis- an Anthropologist Perspective

One year after the financial crisis epitomised by the collapse of Lehman Brothers, there have been many opinions about the causes, symptoms and prognoses expressed by various financial writers. One of the most insightful came from Gillian Tett, the Financial Times editor who put down her thought in the recently published book: Fool's Gold.

In her interview with Singapore's Business Times (published on 14 November), she said:

'The real question is why banks were allowed to make such big profits in the first place. Having 40 per cent of corporate profits coming from the financial sector is simply mad. At the end of the day, finance is a utility. If you had a situation where water companies were representing 40 percent of all corporate profits, you would say something's gone badly wrong, they must be fiddling with the water.

'Finance after all is a means to an end, not an end in itself. But that simple truth got completely lost over the last few years.'

And as an anthropologist by training, her macro view of human society's structure certainly provides firm explanation on why financial re-regulation is so slow to take-off and so hard to achieve, particularly in the context of U.S. where lobbying is the bloodstream of the political system.

'[I]n most societies, you have an elite who will try to stay in power, not just by controlling the means of production, but also by controlling the way people think.

'So in almost any society, the rhetoric of the dominant elite is often riddled with hypocrisy, and is basically all about trying to maintain the system.'

As the saying goes: "There is nothing new under the Sun."

Mother of all "Too-Big-to-Fail" institutions

This week, the U.S. government is pushing for a fix on "too big to fail" institutions so that the next time one of these entities were to collapse again, it will not bring down the entire financial system and therefore government will not need to step in to rescue the entity.

The irony is: the U.S. treasury department itself is a "too big to fail" institution in that it has owed the world so much debts that should the treasury-bond market and/or the U.S. dollar itself faces a sudden plunge (let alone collapse), the world economy will suffer exponentially.

Talk about being held ransom.