As anyone with a brain must have known, the Greeks would be able to disguise their true financial state for only as long as (a) lenders assumed that a loan to Greece was as good as guaranteed by the EU (read: Germany) and (b) no one outside Greece paid very much attention. Inside Greece there was no market for whistleblowing, as basically everyone was in on the racket.
As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it.
In the past 12 years the Greek public sector wage bill has doubled in real terms — and that doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railway has annual revenues of €100m but an annual wage bill of €400m and €300m in other costs.
Where waste ends and theft begins almost doesn’t matter: the one masks and thus enables the other. It’s simply assumed, for instance, that anyone who is working for the government is meant to be bribed. People who go to public health clinics assume they will need to bribe doctors to take care of them. Government ministers who have spent their lives in public service emerge from office able to afford multi-million-pound mansions and two or three country homes.
On October 4, 2009, the Greek government fell. The new government found so much less money in the coffers than it had expected that it decided there was no choice but to come clean. The new prime minister, George Papandreou, announced that Greece’s budget deficits had been badly understated — and that it was going to take some time to nail down the numbers.
Pension funds and global bond funds and other sorts who buy Greek bonds, having seen several big American and British banks go belly up, and knowing the fragile state of a lot of European banks, panicked.
In came the IMF to examine the Greek books more closely; out went whatever tiny shred of credibility the Greeks had left. “How in hell is it possible for a member of the euro area to say the deficit was 3% of GDP when it was really 15%?” a senior IMF official asks.
That’s more or less what I asked when I went to see the new Greek minister of finance, George Papaconstantinou, whose job it was to sort out this fantastic mess. Papaconstantinou (“It’s okay to just call me George”) attended New York University and the London School of Economics in the 1980s and then spent 10 years working in Paris for the Organisation for Economic Co-operation and Development.
He was open, friendly, fresh-faced and clean-shaven, and like many people at the top of the (supposedly socialist) new Greek government he came across less as Greek than as Anglo — indeed, almost American. “The second day on the job I had to call a meeting to look at the budget,” he said. “I gathered everyone from the general accounting office, and we started, like, this discovery process.”
Each day they discovered some incredible omission. A pension debt of £600m every year somehow remained off the government’s books. Everyone pretended it did not exist, even though the government paid it. The hole in the pension plan for the self-employed was not the €300m they had assumed but €1.1 billion; and so on.
“At the end of each day I would say, ‘Okay, guys, is this all?’ And they would say, ‘Yeah.’ The next morning there would be this little hand rising in the back of the room: ‘Actually, minister, there’s this other €100m-€200m gap’.”
By the final day of discovery, after the last little hand had gone up, a previously projected deficit of roughly €7 billion was actually more than €30 billion. The IMF’s question — how is this possible? — is easily answered: until then, no one had bothered to add it all up.
As he finished his story, he stressed that this wasn’t a simple matter of the government lying about its expenditures. “This wasn’t all due to misreporting. In 2009 tax collection disintegrated, because it was an election year.”
“What?”
He smiled. “The first thing a government does in an election year is to pull the tax collectors off the streets.”
“You’re kidding.”
Now he was laughing at me. I’m clearly naive.
The evening after I met the minister of finance, I had coffee with a tax collector at one hotel, and then had a beer with another tax collector at another hotel. Both were outraged by the systematic corruption of their organisation. Both had been demoted after attempting to blow the whistle. For reasons neither wished to discuss, however, they couldn’t stand the sight of each other. This, I was told many times by other Greeks, was very Greek.
Tax Collector No 1 took it for granted I knew that the only Greeks who paid their taxes were those who could not avoid doing so: salaried employees of corporations, who had their taxes withheld from their pay. The vast army of self-employed workers — the biggest in Europe, from doctors to the guys who ran the newspaper kiosks — cheated.
“It’s become a cultural trait,” he said. “The Greek people never learnt to pay their taxes. And they never did because no one is punished. No one has ever been punished.”
On he went, describing a system that was, in its way, a thing of beauty. It mimicked the tax-collecting systems of an advanced economy — and employed a huge number of tax collectors — but it was rigged to enable an entire society to cheat on its taxes.
I walked down the street and found Tax Collector No 2. Opening a binder full of papers, he started to rattle off examples (“only the ones I personally witnessed”) of Greek companies that had cheated on their taxes.
The first was an Athenian construction company that had built seven giant apartment buildings and sold nearly 1,000 flats in the heart of the city. Its corporate tax bill, honestly computed, came to €15m, but it had paid nothing at all.
To evade taxes it had done several things. First, it never declared itself a corporation; second, it employed one of the dozens of companies that do nothing but create fraudulent receipts for expenses never incurred; and then, when Tax Collector No 2 stumbled upon the situation, it offered him a bribe.
He blew the whistle and referred the case to his bosses — and found himself being tailed by a private investigator, his phones tapped. In the end the case was resolved, with the construction company paying €2,000. Tax Collector No 2 was taken off tax investigation “because I was good at it”.
Every page of his thick binder held a similar story and he intended to tell me all of them. If I let him go on we’d be there all night. It wasn’t the only time I had a feeling new to me as a journalist. I’d sit down with someone who knew the inner workings of the Greek government: a big-time banker, a deputy minister, a former MP. Scandal after scandal would pour forth. Twenty minutes into it I’d lose interest. There were simply too many.
The Greek state was not just corrupt but also corrupting. Once you saw how it worked you could understand a phenomenon that otherwise made no sense at all: the difficulty Greek people have in saying a kind word about one another.
Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his property to avoid taxes. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes civic life impossible; and the collapse of civic life only encourages more lying, cheating and stealing.
The structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective. Its real structure is: every man for himself.
Into this system investors poured hundreds of billions of pounds. And the credit boom pushed the country over the edge into total moral collapse.
Just now the global financial system is consumed by the question of whether the Greeks will default on their debts. At times it seems as if it is the only question that matters, for if Greece walks away from £250 billion in debt, then the European banks that lent the money will go down, and other countries flirting with bankruptcy might easily follow.
But there’s a second, more interesting, question: even if it is technically possible for these people to repay their debts, live within their means and return to good standing inside the EU, do they have the inner resource to do it? Or have they so lost their ability to feel connected to anything outside their small worlds that they would rather just shed the obligations?
On the face of it, defaulting on their debts and walking away would seem a mad act: all Greek banks would instantly go bankrupt, the country would be unable to pay for the many necessities it imports (oil, for instance) and the government would be punished for many years with much higher interest rates, if and when it was allowed to borrow again.
But, as I said, the place does not behave as a collective; it behaves as a collection of isolated particles, each of which has grown accustomed to pursuing its own interest at the expense of the common good. There’s no question that the government is resolved at least to try to recreate Greek civic life. The only question is: can such a thing, once lost, ever be recreated?
This summer, when I returned to Dallas to see Kyle Bass, Greek credit default swaps were up from the 11 basis points he had paid to 2,300.
Ireland and Portugal had required massive bailouts; and Spain and Italy had gone from being viewed as essentially riskless to nations on the brink of financial collapse. On top of it all, the Japanese ministry of finance was about to send a delegation to America to seek someone, anyone, willing to buy half a trillion dollars’ worth of 10-year Japanese government bonds.
“This is a scenario in which no one alive has ever invested before,” Bass said. “Our biggest positions now are Japan and France. If and when the dominoes fall, the worst, by far, is France. I just hope the US doesn’t collapse first. All my money is bet that it won’t. That’s my biggest fear. That I’m wrong about the chronology of events. But I’m convinced what the ultimate outcome is.”
His stacks of gold and platinum bars had roughly doubled in value, but he remained on the lookout for hard stores of wealth. Nickels, for instance, the American five-cent coins.
“The metal in a nickel is worth 6.8 cents,” he said. “Did you know that?”
I didn’t.
“I just bought $1m-worth of them,” he said, and then, perhaps sensing I couldn’t do the maths: “20m nickels.”
“You bought 20m nickels?”
“Uh-huh.”
“How do you buy 20m nickels?”
“Actually, it’s very difficult.” He had to talk his bank into ordering them. The bank had finally done it, but the Federal Reserve had its own questions. “The Fed apparently called my guy at the bank. They asked him, ‘Why do you want all these nickels?’ So he called me and asked, ‘Why do you want all these nickels?’ And I said, ‘I just like nickels’.”
He pulled out a photograph of his nickels and handed it to me. There they were, piled up on giant wooden pallets in a Brink’s vault in downtown Dallas. “I’m telling you, in the next two years they’ll change the content of the nickel,” he said. “You really ought to call your bank and buy some now.”
I doubt Bass was ever the sort of person who enjoyed sitting around in an office and staring at a computer screen. He enjoys the unsettled life. We hopped into his Hummer, decorated with bumper stickers (“God bless our troops, especially our snipers”) and roared out into the Texas hill country.
With the fortune he’d made out of the sub-prime crisis, he had bought what amounted to a fort: a 40,000 sq ft ranch house on thousands of acres in the middle of nowhere, with its own water supply and enough automatic weapons, sniper rifles and small explosives to equip a battalion.
That night we tore around his property in the back of his US army Jeep, firing the latest-issue US army sniper rifles, equipped with infrared scopes, at the beavers that he felt were a menace to his waterways.
“There are these explosives you can buy on the internet,” he said, as we bounded over the yellow hills. “It’s a molecular reaction. FedEx will deliver hundreds of pounds of these things.”
The few beavers that survived the initial night rifle assault would wake up to watch their dams being more or less vaporised.
“It doesn’t exactly sound like a fair fight,” I said.
“Beavers are rodents,” he said.
Whatever else he was doing, he was clearly having fun. He’d spent 2½ years watching the global financial system and the people who ran it confirm his dark view of them. It didn’t get him down. It thrilled him to have got his mind around seemingly incomprehensible events.
“I’m not someone who is hellbent on being negative his whole life,” he said. “I think this is something we need to go through. It’s atonement. It’s atonement for the sins of the past.”
© Michael Lewis 2011
Extracted from Boomerang: The Meltdown Tour, by Michael Lewis, to be published by Allen Lane on Thursday at £20. Copies can be ordered for £16.50, including postage, from The Sunday Times Bookshop on 0845 271 2135
As it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it.
In the past 12 years the Greek public sector wage bill has doubled in real terms — and that doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railway has annual revenues of €100m but an annual wage bill of €400m and €300m in other costs.
Where waste ends and theft begins almost doesn’t matter: the one masks and thus enables the other. It’s simply assumed, for instance, that anyone who is working for the government is meant to be bribed. People who go to public health clinics assume they will need to bribe doctors to take care of them. Government ministers who have spent their lives in public service emerge from office able to afford multi-million-pound mansions and two or three country homes.
On October 4, 2009, the Greek government fell. The new government found so much less money in the coffers than it had expected that it decided there was no choice but to come clean. The new prime minister, George Papandreou, announced that Greece’s budget deficits had been badly understated — and that it was going to take some time to nail down the numbers.
Pension funds and global bond funds and other sorts who buy Greek bonds, having seen several big American and British banks go belly up, and knowing the fragile state of a lot of European banks, panicked.
In came the IMF to examine the Greek books more closely; out went whatever tiny shred of credibility the Greeks had left. “How in hell is it possible for a member of the euro area to say the deficit was 3% of GDP when it was really 15%?” a senior IMF official asks.
That’s more or less what I asked when I went to see the new Greek minister of finance, George Papaconstantinou, whose job it was to sort out this fantastic mess. Papaconstantinou (“It’s okay to just call me George”) attended New York University and the London School of Economics in the 1980s and then spent 10 years working in Paris for the Organisation for Economic Co-operation and Development.
He was open, friendly, fresh-faced and clean-shaven, and like many people at the top of the (supposedly socialist) new Greek government he came across less as Greek than as Anglo — indeed, almost American. “The second day on the job I had to call a meeting to look at the budget,” he said. “I gathered everyone from the general accounting office, and we started, like, this discovery process.”
Each day they discovered some incredible omission. A pension debt of £600m every year somehow remained off the government’s books. Everyone pretended it did not exist, even though the government paid it. The hole in the pension plan for the self-employed was not the €300m they had assumed but €1.1 billion; and so on.
“At the end of each day I would say, ‘Okay, guys, is this all?’ And they would say, ‘Yeah.’ The next morning there would be this little hand rising in the back of the room: ‘Actually, minister, there’s this other €100m-€200m gap’.”
By the final day of discovery, after the last little hand had gone up, a previously projected deficit of roughly €7 billion was actually more than €30 billion. The IMF’s question — how is this possible? — is easily answered: until then, no one had bothered to add it all up.
As he finished his story, he stressed that this wasn’t a simple matter of the government lying about its expenditures. “This wasn’t all due to misreporting. In 2009 tax collection disintegrated, because it was an election year.”
“What?”
He smiled. “The first thing a government does in an election year is to pull the tax collectors off the streets.”
“You’re kidding.”
Now he was laughing at me. I’m clearly naive.
The evening after I met the minister of finance, I had coffee with a tax collector at one hotel, and then had a beer with another tax collector at another hotel. Both were outraged by the systematic corruption of their organisation. Both had been demoted after attempting to blow the whistle. For reasons neither wished to discuss, however, they couldn’t stand the sight of each other. This, I was told many times by other Greeks, was very Greek.
Tax Collector No 1 took it for granted I knew that the only Greeks who paid their taxes were those who could not avoid doing so: salaried employees of corporations, who had their taxes withheld from their pay. The vast army of self-employed workers — the biggest in Europe, from doctors to the guys who ran the newspaper kiosks — cheated.
“It’s become a cultural trait,” he said. “The Greek people never learnt to pay their taxes. And they never did because no one is punished. No one has ever been punished.”
On he went, describing a system that was, in its way, a thing of beauty. It mimicked the tax-collecting systems of an advanced economy — and employed a huge number of tax collectors — but it was rigged to enable an entire society to cheat on its taxes.
I walked down the street and found Tax Collector No 2. Opening a binder full of papers, he started to rattle off examples (“only the ones I personally witnessed”) of Greek companies that had cheated on their taxes.
The first was an Athenian construction company that had built seven giant apartment buildings and sold nearly 1,000 flats in the heart of the city. Its corporate tax bill, honestly computed, came to €15m, but it had paid nothing at all.
To evade taxes it had done several things. First, it never declared itself a corporation; second, it employed one of the dozens of companies that do nothing but create fraudulent receipts for expenses never incurred; and then, when Tax Collector No 2 stumbled upon the situation, it offered him a bribe.
He blew the whistle and referred the case to his bosses — and found himself being tailed by a private investigator, his phones tapped. In the end the case was resolved, with the construction company paying €2,000. Tax Collector No 2 was taken off tax investigation “because I was good at it”.
Every page of his thick binder held a similar story and he intended to tell me all of them. If I let him go on we’d be there all night. It wasn’t the only time I had a feeling new to me as a journalist. I’d sit down with someone who knew the inner workings of the Greek government: a big-time banker, a deputy minister, a former MP. Scandal after scandal would pour forth. Twenty minutes into it I’d lose interest. There were simply too many.
The Greek state was not just corrupt but also corrupting. Once you saw how it worked you could understand a phenomenon that otherwise made no sense at all: the difficulty Greek people have in saying a kind word about one another.
Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his property to avoid taxes. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes civic life impossible; and the collapse of civic life only encourages more lying, cheating and stealing.
The structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective. Its real structure is: every man for himself.
Into this system investors poured hundreds of billions of pounds. And the credit boom pushed the country over the edge into total moral collapse.
Just now the global financial system is consumed by the question of whether the Greeks will default on their debts. At times it seems as if it is the only question that matters, for if Greece walks away from £250 billion in debt, then the European banks that lent the money will go down, and other countries flirting with bankruptcy might easily follow.
But there’s a second, more interesting, question: even if it is technically possible for these people to repay their debts, live within their means and return to good standing inside the EU, do they have the inner resource to do it? Or have they so lost their ability to feel connected to anything outside their small worlds that they would rather just shed the obligations?
On the face of it, defaulting on their debts and walking away would seem a mad act: all Greek banks would instantly go bankrupt, the country would be unable to pay for the many necessities it imports (oil, for instance) and the government would be punished for many years with much higher interest rates, if and when it was allowed to borrow again.
But, as I said, the place does not behave as a collective; it behaves as a collection of isolated particles, each of which has grown accustomed to pursuing its own interest at the expense of the common good. There’s no question that the government is resolved at least to try to recreate Greek civic life. The only question is: can such a thing, once lost, ever be recreated?
This summer, when I returned to Dallas to see Kyle Bass, Greek credit default swaps were up from the 11 basis points he had paid to 2,300.
Ireland and Portugal had required massive bailouts; and Spain and Italy had gone from being viewed as essentially riskless to nations on the brink of financial collapse. On top of it all, the Japanese ministry of finance was about to send a delegation to America to seek someone, anyone, willing to buy half a trillion dollars’ worth of 10-year Japanese government bonds.
“This is a scenario in which no one alive has ever invested before,” Bass said. “Our biggest positions now are Japan and France. If and when the dominoes fall, the worst, by far, is France. I just hope the US doesn’t collapse first. All my money is bet that it won’t. That’s my biggest fear. That I’m wrong about the chronology of events. But I’m convinced what the ultimate outcome is.”
His stacks of gold and platinum bars had roughly doubled in value, but he remained on the lookout for hard stores of wealth. Nickels, for instance, the American five-cent coins.
“The metal in a nickel is worth 6.8 cents,” he said. “Did you know that?”
I didn’t.
“I just bought $1m-worth of them,” he said, and then, perhaps sensing I couldn’t do the maths: “20m nickels.”
“You bought 20m nickels?”
“Uh-huh.”
“How do you buy 20m nickels?”
“Actually, it’s very difficult.” He had to talk his bank into ordering them. The bank had finally done it, but the Federal Reserve had its own questions. “The Fed apparently called my guy at the bank. They asked him, ‘Why do you want all these nickels?’ So he called me and asked, ‘Why do you want all these nickels?’ And I said, ‘I just like nickels’.”
He pulled out a photograph of his nickels and handed it to me. There they were, piled up on giant wooden pallets in a Brink’s vault in downtown Dallas. “I’m telling you, in the next two years they’ll change the content of the nickel,” he said. “You really ought to call your bank and buy some now.”
I doubt Bass was ever the sort of person who enjoyed sitting around in an office and staring at a computer screen. He enjoys the unsettled life. We hopped into his Hummer, decorated with bumper stickers (“God bless our troops, especially our snipers”) and roared out into the Texas hill country.
With the fortune he’d made out of the sub-prime crisis, he had bought what amounted to a fort: a 40,000 sq ft ranch house on thousands of acres in the middle of nowhere, with its own water supply and enough automatic weapons, sniper rifles and small explosives to equip a battalion.
That night we tore around his property in the back of his US army Jeep, firing the latest-issue US army sniper rifles, equipped with infrared scopes, at the beavers that he felt were a menace to his waterways.
“There are these explosives you can buy on the internet,” he said, as we bounded over the yellow hills. “It’s a molecular reaction. FedEx will deliver hundreds of pounds of these things.”
The few beavers that survived the initial night rifle assault would wake up to watch their dams being more or less vaporised.
“It doesn’t exactly sound like a fair fight,” I said.
“Beavers are rodents,” he said.
Whatever else he was doing, he was clearly having fun. He’d spent 2½ years watching the global financial system and the people who ran it confirm his dark view of them. It didn’t get him down. It thrilled him to have got his mind around seemingly incomprehensible events.
“I’m not someone who is hellbent on being negative his whole life,” he said. “I think this is something we need to go through. It’s atonement. It’s atonement for the sins of the past.”
© Michael Lewis 2011
Extracted from Boomerang: The Meltdown Tour, by Michael Lewis, to be published by Allen Lane on Thursday at £20. Copies can be ordered for £16.50, including postage, from The Sunday Times Bookshop on 0845 271 2135
![[wink]](/xen/styles/default/xenforo/smilies.vb/002.gif "Wink [wink]")
What would Mr. Bass buy? An island. An island is reasonably easy to defend. However, even that would only be a part of his solution. In case of a total collapse and need for safety many wealthy would do what they always did in the past – flee to safer places. And there are plenty which will happily take some of their gold in exchange for safe harbor. Of course the visionary like Mr. Bass would buy his safe harbor properties now with paper dollars at great prices and later would sail or fly to his new home country. ![[laugh]](/xen/styles/default/xenforo/smilies.vb/012.gif "Laugh [laugh]")
