We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are

Life, Liberty and the pursuit of Happiness.

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,

Monday, September 13, 2010

What crashed Greece's banks...

From the S&A Digest...

"If the law was enforced," the tax collector said, "every doctor in Greece would be in jail."

Michael Lewis wrote a great article on the Greek collapse in Vanity Fair. He traveled to Greece and interviewed government employees, tax collectors, and monks (explained in the article). Lewis wanted to know what caused Greece to crash so spectacularly. Unlike most of the world, Greece's banks didn't use the credit expansion to load up on subprime U.S. securities and other garbage. The cause for Greece's collapse is much simpler... It's socialism and good, old-fashioned government corruption. Greek banks took all of the new money and lent it to the government. And the government did what it does best... stole and squandered. As Lewis puts it, "In Greece, the banks didn't sink the country. The country sank the banks." In the excerpt below, Lewis notes the excesses in Greece's public sector...
The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece's rail passengers into taxicabs: it's still true...

The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland's. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something. There are three government-owned defense companies: together they have billions of euros in debts, and mounting losses.

The retirement age for Greek jobs classified as "arduous" is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on. The Greek public health-care system spends far more on supplies than the European average—and it is not uncommon, several Greeks tell me, to see nurses and doctors leaving the job with their arms filled with paper towels and diapers and whatever else they can plunder from the supply closets.
The excesses in Greece's liberal government pay policies are only rivaled by the government's inability to record costs. When Greek minister of finance, George Papaconstantinou, took his post last October (his job was to solve the mess), he discovered billions of dollars of government programs that were never accounted for. The G reek government never had a third-party verify its statements... That's one reason the news from Greece continually worsened... The government continually discovered it owed more and more money.

Greece is also particularly inept at collecting taxes. No self-employed citizens pay taxes because the government doesn't make them. One of the characters quoted in the article told Lewis: "It's become a cultural trait. The Greek people never learned to pay their taxes. And they never did because no one is punished. No one has ever been punished. It's a cavalier offense – like a gentleman not opening a door for a lady." To top things off, 2009 was an election year in Greece. During election years, politicians "pull the tax collectors off the streets." You can read Lewis' full article here.

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