Book Review: The Intelligent Investor

I never intend Bankers Anonymous as a “How to invest” site,1 but B$A readers may safely approach The Intelligent Investor as a “How Not to Invest” site, a more profitable set of rules in the long run, in my opinion.  I prefer The Intelligent Investor to any modern investment book I’ve ever read, and I recommend it as inoculation against the investment advice crap that fills up bookstores, television, and the interwebs.

Since I started working in finance 15 years ago, acquaintances frequently learn about my background and start in with a “So what do you think of the market here?” or “What do you think of X stock?”  The conversation typically gets awkward from there, as I mumble that fixed income markets are different from ‘the market’ they are asking me about and that I typically have no opinion whatsoever about particular stocks.

My professed ignorance is real, but The Intelligent Investor reminds me of why it’s best that I have no opinion.  Benjamin Graham’s quick answer would be that security selection 2 is investing – rather than speculating – only if you have an idea about the value of the company you invest in.  The company’s true value, in turn, would depend on knowing something about the cash flows which may be reasonably expected3 to accrue to the business you’re buying.  Approximately 0.01% of the people4 asking my opinion about a particular stock have sought to value a company’s cash flows5 before making their purchase, or before asking my opinion.  So what my acquaintance really is asking me is whether I prefer red or black at the Roulette wheel, or whether I hit or stay on 16 when the blackjack dealer is showing a 5.  Frankly, I have no opinion, but it’s usually considered impolite to add that I’m pretty sure the house is going to win against you in the long run. So I try to stay quiet and mumbly.

Please allow me to justify my somewhat extreme response, as it’s contrary to everything most other financial professionals want you to believe, from the Motley Fool to the CNBC fool 6 whose primary parlor trick consists of reciting nonsensical facts he memorized about stocks just before the cameras started rolling.  I don’t want to come off like a pretentious finance guy looking down my nose at amateur day traders.  My real target here is not my day trading acquaintances, but rather the entire financial-infotainment-industrial complex, from CNBC to TD Ameritrade, from Goldman Sachs to Charles Schwab, which wants you to believe any or all of the following myths:

1. You can beat the market.

2. Your mutual fund manager can beat the market.

3. Jim Cramer7 can beat the market.

4. Your investment advisor can beat the market.

5. Your hedge fund guru can beat the market.

Although first published in 1949, very little of The Intelligent Investor feels dated.  I estimate 95% of the opinions and techniques described by Graham still apply.8

Here’s a few rules of Graham’s approach that we all mostly honor in the breach, when investing:

  1. Investing in volatile markets requires not a timing approach, but rather a pricing approach.  The entire financial-infotainment-industrial complex will guide you to the former, but investing according to value, when the stock dips into an attractive price range, requires knowing something about how to value a company, and something about the value of your particular target company.  Trust me when I say neither Jim Cramer nor TD Ameritrade will help you in this process.
  2. You should receive investment advice with deep skepticism, whether it comes from your investment advisor, brokerage houses, investment firms, friends, or relatives.  The best investment advisor is one who does two things: She prevents you from imprudent investment behavior, and she claims not brilliance but rather careful and conservative competence.
  3. New issues favor the seller, not the buyer, as the seller has the best access to information and almost by definition picks a favorable time to sell securities.9  Individuals should almost never seek to buy new issues.
  4. When deciding to purchase a stock, think like an owner, as that’s what you’ve become.  Expect and hope to be treated by management like an owner.  Realize, however – and this was as true in 1949 as it is today – that shareholder rights barely exist in practice.
  5. Be business-like in your investment practice.  If you would not make professional decisions at work on a whim, based on emotion, or following a rumor you picked up from your gym-buddy, try to resist doing any of those things when making investments.  If you approach investing as an amateur, do not expect profits like a professional, just as you would not in your day job.  Businesslike investing for businesslike profits requires work, an idea which the financial-infotainment-industrial complex would like you to forget.

Benjamin Graham exposes the awful truth that very few of us can competently handle the work required to invest, rather than to speculate.  Even worse, most investment advisors encourage the latter rather than the former.

Once you’ve absorbed this awful truth, what’s an ex-banker to do, you ask?10  I’ll paraphrase Graham and add my own editorial suggestions in the light of The Intelligent Investor:

  1. Hire an investment advisor, but pay them to keep you prudent and to deliver market results.  As a logical consequence of this expectation, don’t overpay for investment advice.
  2. Expect market results.  Do not expect to ‘beat the market.’11
  3. Markets can be volatile, and that’s not entirely a bad thing.12
  4. If you enjoy investing as a hobby, allocate some small part of your investible capital to your hobby, and expect to pay appropriately for that entertainment.  Allocate the greatest portion of your investible capital to a low-cost investment vehicle, not managed by you, that fits your appetite for risk.
  5. Know your appetite for risk.  For example, can you handle losing money?  How much would you be able to lose without losing your head?  Have you considered FDIC-guaranteed bank deposits as a result of thinking about this?
  6. Most people seek to highly diversity their investments, and rightly so.  On the other hand, most people who become very wealthy in their own lifetime typically have extremely concentrated equity exposure.13 Are you someone who knows enough about owning your business(es) to be extremely concentrated in your equity investments?

Unlike The Motley Fool, I write Bankers Anonymous to “amuse and inform,” but not to give investment advice, or to “enrich.”  Financial advice hasn’t improved much in the last 60 years, which is why The Intelligent Investor is where to begin if you’re looking for investment advice, and it might just be where to end as well.

Please see related post: All Bankers Anonymous Book Reviews in one place.

 

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  1. It’s funny how many people, upon hearing my intentions with B$A, have said “So that’s just like The Motley Fool,  right?”  I’m not here to “Educate, Amuse & Enrich.”  Just the first two, sorry.
  2. I don’t mean to be jargon-y saying ‘security selection’ instead of ‘stock picking.’ I’m using ‘securities’ to mean stocks or bonds, and Graham refers to them both.
  3. Allowing for Graham’s signature investing rule to always allow for a “margin of safety”
  4. I rounded up that figure, fyi.
  5. I’m saying cash flows here to mean either the income from a bond you own or the expected profits from the company that you own shares in.
  6. Jim Cramer
  7. Yeah, that guy with the clown squeaks, horns and whistles.  Needless to say this brings to mind the great Jon Stewart take-down of Jim Cramer.
  8. Oddly enough, interest rates have done a round trip since 1949, from 2.5% on the 10year to 16% and then back, such that his discussion on expected bond returns feels fresher than it probably would have 30 years ago.  Kinda weird.
  9. For a little more detail on my views of IPOs, can I interest you in this posting?
  10. Last week I came across the best four pages of bullet-pointed investment advice and investment advisory advice I’ve ever seen assembled in one place.  You’ll want to scroll down to Appendix 3, pages 9-12, of this attached PDF.  If any of this blog post/book review speaks to you, you will love printing out those four pages and hanging them on your wall for future reference.  I have zero connection to that author, and I had never heard of him before last week.  You’re welcome.
  11. Now is as good a time as any to acknowledge the weird and ironic truth that Graham’s best-known protégé, Warren Buffett, is the most famous market-beating investment manager of all time.  When I read The Intelligent Investor, I get the strong sense that very few people will ‘beat the market,’ so I should not try it.  But Buffett must have gotten the strong sense of the opposite: that through his efforts he would be one of the rare people who could beat the market.  That’s just one of the small ways in which my life trajectory has differed from Buffett’s.
  12. Graham means it in the sense that stocks sometimes get cheap, so volatility can be your friend.  I mean it in another sense as well.  In the post-Madoff era, we’ve learned that a consistent return with no down months does not mean your investment advisor is a genius, it means he’s a fraud.  Remind me to tell you some time about my client who berated me for 20 minutes over the phone when he experienced the first down month in my fund.  After a period of steady returns investing with me he had come to expect no down months, and suddenly I was “terrible at my job,” and he wanted his money back immediately.  In a related news item, he found out by January  2009 that he had not just Madoff in his portfolio but 3 other Ponzi schemers as well.  He was a lot sweeter to me after that.
  13. The wealthiest man I’ve ever known, someone on the Forbes 400 list, told me when we first met that he’d never invested in the stock market.  Most of his family’s net worth, however, derives from their ownership of a single successful retail business.  That kind of concentrated equity exposure is typically a pre-condition of people who experience massive increases in wealth in their lifetime.  Think Rockefeller, Gates, Jobs, and Zuckerberg.
    These folks did not get wealthy through diversification, but rather the opposite.

In Praise of SIGTARP, Norse God of Financial Accountability

“…But in 2012, the people became restless.  They mistrusted the 1% who lived far away in beautiful, unattainable, icy Jotunheim.

And the people quarreled amongst themselves.  They could not agree with one another or keep the peace.  The people were the 99%, and they divided into warring ideological camps, visiting bloody internecine raids upon the other side.

One group, the Teaparty tribe, worshiped the demigod Free Market and raged against encroachments from their sworn enemy, Big Gov, who dwelt smugly in the elaborate Federalist castles of Washington DC.

The others, the Occupy tribe, supplicated before the Mother Goddess Collective Action, and they named their enemy Big Bank, who ruled cruelly from the executive suites of New York skyscrapers.

Periodically one tribe drew blood from the other side in a furious ideological battle.  But even amidst the carnage, both sides wished for a savior, a hero who could unite them.  The One.

In the beginning, little did the people notice online publications from Neil Barofsky, which showed the 99% their common enemy lived in both Washington DC and Wall Street.  Who was this Neil Barofsky?  At first he appeared to be a mild-mannered grunt, a common civil servant, toiling in the basement of the US Treasury from 2008 to 2010.  But on July 25, 2012, with the publication of Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, he became known to the world as SIGTARP[1], Norse God of Financial Accountability!

At last revealed in all his glory, SIGTARP arrived, flanked by Amazons!

The 99% needed a hero to unite them, to show them how both Washington and Wall Street betrayed them all.  SIGTARP unfurled his fearsome flag of financial accountability.  The two tribes put down their weapons against one another and turned toward the new banner.

They finally understood the truth.  Big Government and Big Bank conspired together to keep them down.  A new unity began to emerge, as the armies of the 99% integrated.

No longer needing his disguise as Neil Barofsky, SIGTARP ripped off his itchy wool suit to reveal rippled musculature and a mighty pen describing infernal, festering corruption.  Under the Bailout banner, SIGTARP and the newly united 99% began their determined march upon Jotunheim.”

 

Ok, I haven’t read Bailout yet, as it was just published today.  Based on today’s NY Times Review, the book suffers from some simplistic moralizing and, perhaps, Barofsky’s savior-complex.

But – and I mean this in earnest – I have had a serious man-crush on Neil Barofsky for a while now.  As SIGTARP, he managed to accurately review the TARP process, while maintaining critical distance from both Washington and Wall Street.[2]  I will highlight in the next few weeks some of the excellent reporting done by his office.  For all the unhappy things that may be said about the cynical nexus of Wall Street and Washington, SIGTARP has given me hope in the last year that our system can be resilient and accountable.  A hero may yet rise.

Thank you SIGTARP!

“No problem, kid,” answers a booming, disembodied voice, before soaring upward, headed toward Jotunheim.



[1] SIGTARP stands for Special Investigator General  for the Troubled Asset Relief Program, the Congressionally appointed watchdog over the $700B TARP program created in 2008 at the height of the Credit Crunch.

[2] Not an easy trick!  As the NY Times review excerpts from the book preface, Barofsky met in 2010 with Herb Allison, former head of TIAA and Fannie Mae:  “ ‘Have you thought at all about what you’ll be doing next?’ Mr. Allison asks Mr. Barofsky, soon adding, ‘Out there in the market, there are consequences for some of the things that you’re saying and the way that you’re saying them.’  ‘Allison was essentially threatening me with lifelong unemployment,’ Mr. Barofsky concludes, and alternatively suggesting a plum government appointment some day if Mr. Barofsky would simply ‘change your tone.’  When Mr. Barofsky tells his deputy of the exchange, the deputy says, ‘it was the gold or the lead,’ resorting to their joint experience prosecuting drug kingpins in New York: Cooperate and share the riches, or don’t and get plugged.”

 

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Interview: What the %#@! is a Fund of Funds?

Please click above to listen to full interview.

I spoke with an old friend Trevor, a former Director of Research at a Hedge Fund of Funds.  In college, a mutual friend of ours imaged a radio show named “What the Fuck Do you Do?” in which he interviewed people in jobs that nobody else understood the name of, or the function of.  This interview is in that spirit.  He spoke about the business, lucking into one of the best bosses in finance, and then leaving it all.  This interview is also in the spirit of Trevor himself, a recovering banker trying to figure out what’s next for him.

What is a Fund of Funds?

Trevor:  Hi my name is Trevor and I used to be the director of research for a fund of funds.

Michael:   Trevor, thank you for agreeing to be part of Bankers Anonymous. I’m wondering when you said you’re a fund of funds manager, what percentage of people that you ever talk to, who you identify yourself as a fund of funds manager say, “Oh, I know exactly what that is,” or do people have no idea what you’re talking about?

Trevor: People have no idea what I’m talking about.

Michael: What do you usually say?

Trevor:  And it’s usually a stultifying opener when I say – people say what do you do and I say, “I work for a fund of funds, fund of hedge funds.” Three-quarters of the time there’s a blank stare and then one-quarter of the time people actually ask a follow-up question about what it is. But the topic of finance generally sends people running away from the conversation. So I usually lie now when I tell people what I do.

Michael:  What’s your backup answer now, zoo keeper?

Trevor: I raise bees, African honey bees which produce a very spicy variety of honey.

Michael: Awesome. I know what a fund of funds business is more or less, although I’ve not worked at one, but is it easy to describe what that means?

Trevor: It is. It is a collection of funds run by other people managed by the fund of funds operator. Usually I give people the analogy of mutual funds because most people know what mutual funds are. The business model is if I was going to create a fund of mutual funds, so instead of you investing in mutual funds directly and picking ten mutual funds, you could invest in Trevor’s fund of mutual funds and by investing in my one fund you get exposure to however many underlying mutual funds I choose to put in the portfolio.

The fund of hedge funds is the same idea but instead of underlying investments being in mutual funds, the investments are in hedge funds. That’s usually when people freak out because they’re like “Oh my god, hedge funds; now you’ve lost me. Aren’t those all terrible?”

Michael: Are you part of the evil hedge-fund world?

Trevor: Yeah.

Michael: I’m familiar with that, where people hear fund of funds and suddenly there’s a blank stare and everybody’s like “Oh my God look shiny object over there.”

Trevor: And, to interrupt you, then the smart people say, “Oh, so that’s an extra layer of fees, so basically you pay fees to the hedge funds and then I pay fees to you, and then there’s multiple layers of fees. So it’s not really a business, it’s just a set of fees.” That’s what the savvy, cynical, smart people usually observe right away.

Michael: The classic criticism of hedge funds themselves is they’re not really an asset class but a compensation scheme.  As a derivative of a hedge fund you could be a compensation scheme on top of a compensation scheme.

Trevor: Yes.

Michael: But having been in the world, do you think the added expense is worth it?

Trevor: The firm that I worked at launched multiple products going back over the last twenty years and their long-term results easily beat the S&P500 with better performance characteristics, as net of all fees.

Michael:  Performance characteristics: Volatility, Return, what else am I worried about – draw down I guess; how much did you lose in a bad year?

Trevor:  Yup, and then one more which is correlation to the index.  If the index is going one way the fund of funds is not necessarily having the same pattern. So there are fund of funds which have been able to outperform the broad-based market net of all fees over a five, ten, fifteen, twenty-year time frame.

Michael: And your fund did that?

Trevor:   Yes.

Michael:  So post-credit crisis in 2012 is the world different for fund of funds?

Trevor:    I think there will always be a need for fund of funds because institutional investors want access to alternative investments and part of that is access to hedge funds. A lot of those programs don’t have the resources to research hedge funds, and invest in them, and monitor them. So if you’re a 200 million dollar endowment for a secondary school or small university,

Michael:  Basically, tiny.

Trevor:  And you allocate twenty percent to hedge funds, so you have 40 million dollars going into hedge funds. And of that, you have half of that going into long/short equity hedge funds, you can’t hire the staff to adequately research and monitor it. So middle-sized endowments will always have a need for a gatekeeper to help them.

Then a lot of larger institutions often hire funds of funds to create a starter kit and they will put together fund of funds for the larger college endowment, and then the endowment will eventually take it over once they’ve learned the ropes.

And the last category that’s probably never going away is if you’re a high net-worth individual but you’re not super, ultra-rich, you can’t afford to create your own diversified portfolio hedge fund because they generally have a one million dollar to five million dollar minimum, so if you, say, only have ten million dollars to invest and you put twenty percent in hedge funds which is two million dollars, you can invest in two hedge funds, maybe, which as everyone knows you don’t want to take on concentration risk in really any asset class. So the high-net individual but not ultra high-net will always need a fund of funds to create a diversified pool.

Michael:  Is that essentially the customer base of your business, medium-size endowments and high but not ultra high-net worth individuals?

Trevor:  When the firm first launched it was mostly high net-worth individuals, which I think is if you go around to your friends and say, “Hey I’m starting this business, will you invest?” And then over time they generate the track record and credibility, their shift was towards institutional clients. The current composition is ninety-five percent institutional and five percent individuals.

Michael: I’m sorry, ninety-five percent institutional and five percent individuals?

Trevor:  Right, so the shift over time was dramatically towards institutional money meaning pension plans, charities, endowments, foundations as opposed to individual investors.

Michael: I obviously know you quite well and I know you have a mathematical background but can you describe what it’s like to work for a fund of funds? What’s the main skill set that’s useful?

Trevor:  I think everybody approaches selecting managers differently and there are places that run Monte Carlo simulations and all sorts of back testing and modeling and then there’s people on the totally other end of the spectrum who just meet with a manager and think, “I like that guy.”

Michael:  More a feel on what’s a good manager or good investor.

Trevor:  Yeah, and both approaches probably work fine, as long as you do the one that makes sense to you. Our firm fell somewhere in the middle where we did a lot of number crunching and we would look at past track records and look at when managers had losses how did they respond to those losses. Hedge funds generally have access to leverage so when the economic environment deteriorates does the manager double down to take on more risk in hopes of making all this money back quickly; or if they have losses and a bad environment do they reduce exposure and risk and crawl back slowly? Looking at quantitative information to assess how a manager responds to risk and how much risk they take on.

Michael:  So it’s a mix. It doesn’t sound like rocket-science math.

Trevor: No, there’s some standard deviation and draw downs but probably high school level math.

How Do You Get a Job at a Fund of Funds?

Michael:  In 2002 you were not in the financial world.  How does one get a job at a fund of funds shop?

Trevor: I think it’s a strange path. Probably very few people coming out of college have heard of this industry. So I happened to get into it by a sequence of events where my uncle had worked for a guy who ran the company and he hired me to do some software programming. Then I joined running operations and gradually made a transition to the investment side while doing the CFA program. It was a very idiosyncratic route.

Michael:  The work environment was somewhat idiosyncratic also?

Trevor:  Yes, I think I worked for one of the nicest people in finance, certainly shocking and refreshing to find someone who is very principled and fair and entertaining. I remember an early conversation where the boss said, “You know, I’d really like to take Fridays off in the summer, but if I take Fridays off what am I going to do about all the employees? Maybe they can work half a day. Oh fuck it, just everybody gets Friday off.” But that was also tempered with if you made a mistake he would come down very hard on you. It was very high expectations but it was a very fair environment.

One great memory which is that my boss used to come into my office and he would say, “You know, when I had my first consulting job, my boss would come in and he would say, ‘I’m going to give you six months to work on this, and if it turns out well you get full credit. And if it goes badly, you’re fired.'” And I’d think ha-ha that’s great, good story.  He told me this anecdote maybe three or four times over the course of two weeks, and the fourth time it dawned on me; those are the rules. If it goes well, I get full credit, and if it goes poorly, I’m fired.

Walking Away From It All

Michael:  Okay, you’re no longer fulltime with the same fund of funds and as I understand it you’re interested in other things. Why would you do that?

Trevor:   Great question. A friend of mine told me he would come up to New York and shoot me if I lived there for more than five years.

Michael:  So it was fear that drove you away.

Trevor: At year eight I was getting worried that would actually happen.

I love spending time out of doors and I love farmers markets and I love a slightly slower pace of life. It’s very hard to achieve that in New York where your apartment can be very small and dark unless you’re extremely successful. People don’t generally host dinner parties or hang out in their apartments which I think is why I think a lot of the public spaces in New York are so great. Peoples’ existence in their own apartments is not a great hosting venue. But all that being said, I wanted to move out West and have access to the out of doors.

Michael: While maintaining your anonymity for this program, we’ll just say you’re in California, somewhere in California. They’ll have to try to find you. I think I’m hearing you say actually when it came down to money versus friendships you found the friendship part more compelling. This sounds very un-banker-like of you.

Trevor: Certainly I would rather have more money than less money. I did have this idea I would work hard and save up money for a while and then leave and do something else. I’m in the process of executing that transition and certainly some days I wake up and I think what an idiot; if I had stayed and followed the traditional succession plans, I’d be a gazillionaire.

Michael:  But even making the choice to leave and get into a different mode of life, it’s still hard to think: “Wow, but I could have had this money!”

Trevor: I think it’s hard to take a path where you’re relatively senior and successful and basically go into another industry or set of interests where you don’t have any credibility or expertise necessarily, but you think it’s a more satisfying and rewarding way to spend your time. I’ve discussed this with my former boss and he wisely wrote back and said, “Money means nothing if you are unhappy.”

Michael: Wise words.

Trevor: If it’s a calling that’s good for you, and there are certainly plenty of people in finance who genuinely enjoy it.  Then I think it’s a great career track. But money corrupts and it’s an industry that can lead people to stay working in it when they don’t get a whole lot of meaning out of it.

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When Geithner Goes to Goldman

Just an FYI: I plan to walk out my front door to punch the neighbor’s cat in the face, toward the end of this year, when US Treasury Secretary Geithner finally announces he’s joining Goldman, Sachs & Co as senior advisor and Managing Director.

While he’s indicated his intention of leaving his post as Treasury Secretary soon, Intrade gives Geithner a 37% chance of leaving before the end of Obama’s first term.  The departure of two top Geithner aides to Goldman Sachs in the past 4 months has increased the chatter that Geithner will soon be headed that way as well.

To be clear, I believe punching Mr. Biggins on his cute little cat nose will accurately reflect the combination of surreal injustice and rage that I will feel.  Consider it a measured, senseless act of violence and random mean-spiritedness to match the public mood that should accompany Geithner’s inevitable sell-out move.  What else can I do?  What else can any of us do?

While my act will be appropriately senseless, I want to be careful in how I explain my feelings.

I hold no particular grudges towards those who, in the spirit of providing a better life for their families, seek employment in the private sector following a long career in public service, like Timothy Geithner.

I won’t blame Goldman for offering Geithner the job, either, as it’s clearly in their interest to hire such a key player in shaping the current financial architecture.

I also hold no specific animus toward Geithner himself, who appears to have executed admirably on his difficult professional assignments.

Geithner’s resume deserves respectful review and appreciation.  The man served as Under Secretary of the Treasury under Larry Summers when the latter signed our dollar bills as Treasury Secretary.[1]  He moved up to President of the Federal Reserve Bank of New York in 2003.

Some FRB-NY Presidents have served in that position, easily the second most powerful seat at the Federal Reserve, in relative obscurity.  But not Geithner.  He had the interesting fortune to be on the FRB-NY President hot seat during the Great Credit Crunch in 2008[2], thereby putting his imprint on every major decision made about Wall Street from 2007 to 2009.

When Bear Stearns teetered on the edge of Bankruptcy and the FRB-NY offered a $25 Billion loan to tide Bear over, Geithner was there.  When the FRB-NY subsequently rescinded its offer to Bear, ensuring its immediate demise, Geithner was also there.

JPMorgan Chase then bought Bear Stearns for a song, and the FRB-NY provided up to a $30 Billion non-recourse loan to get the deal done.[3]  Geithner was there too.[4]

When the FRB combined with the US Treasury to lend up to $182 Billion to prop up AIG, a bailout understood at the time to be, and a bailout that actually was[5], a back-door bailout of the largest financial firms in the world, Geithner was there.[6] [7]

When the Federal Reserve and US Treasury made available to Bank of American $20 Billion in additional TARP funds[8] and an extra $118 Billion in asset guarantees[9]  to ensure that it followed through to purchase Merrill Lynch in December 2008, Geithner was there too.[10]

Obama took office in January 2009 and Geithner received a promotion from the FRB-NY President to US Treasury Secretary, a logical move to ensure continuity at a very dicey time in financial markets.  I’ve written in an earlier post about the tight circle of government officials running financial policy, and the trade-offs between continuity and stagnation.  It was not crazy for Obama to promote Geithner.

In the light of Geithner’s impending employment by Goldman Sachs, however, it’s interesting to review how Geithner has not “been there” on a number of issues.

When AIG paid bonuses to its executives after its $170 Billion bailout, the largest financial failure/bailout of all time,[11] Geithner as US Treasury Secretary did not force a clawback of those AIG bonus payments.  Under what authority could Geithner influence bonus payments?  The US government owned 92% of AIG at that time.  But Geithner somehow wasn’t there.

After Ken Lewis destroyed a perfectly healthy Bank of America in 2008 through his devestating purchases of Countrywide and Merrill Lynch, forcing the extraordinary Treasury and FRB-NY bailouts to stabilize the bank, Lewis departed in 2009 with an estimated $125 million retirement package.  Under what authority could the US Treasury Secretary influence executive payments?  Well, for starters, Bank of America owed $45 Billion at the time to the US Treasury.  But Geithner wasn’t there to claw back Lewis’ compensation.

While Too Big to Fail (TBTF) banks continue to this day to operate as large hedge funds, and continue to compensate their executives accordingly, under an implied government guaranty of safety, Geithner is not taking a public stance against this.

While I review the FRB-NY and US Treasury bailouts in some detail I want to be careful not to blame Geithner exclusively for mistakes that were made.  I don’t endorse every decision made by Paulson and him, but I acknowledge the battlefield conditions under which they labored.  I know the issues are complex; they weighed financial stability against moral hazard, justice against political feasibility.  I get it.  This stuff is hard.

But at no point in his tenure as FRB-NY President or US Treasury Secretary did we witness Timothy Geithner take a principled, unpopular stance – in the face of egregious moral hazard – to come down hard on Wall Street’s surviving behemoths.

I’m not a paranoid person by nature, and I believe Geithner’s actions to be defensible without accusing him of sucking up to his future employers.[12]

Clearly one analogy here is a powerful Congressman[13] who leaves office, moves down to K-street, and sets up a profitable lobbying shop influence peddling on his access to decision-makers.  We have some, albeit too few, restrictions on this type of brazen move.  Even that comparison, however, misses the magnitude of Geithner’s influence in recent years over $Billions in compensation and investment returns.

As an ex-banker I – oddly enough – still believe in the system.  I assume a basic decency tempers all but a few bad actors.  I’m still shocked by corruption.  I still can be disappointed by greed and influence peddling, and I believe the United States still boasts the least corrupt financial center in the world.[14]

More than any other single financial leader Geithner has argued within the administration for stabilizing and buttressing TBTF banks above all other factors, and seemingly has resisted efforts to extract proportionate commitments from the salvaged banks in the name of systemic reform or limitations on executive compensation.  Geithner’s heroic efforts on behalf of the TBTF banks have been worth billions of dollars to them, and he’s become the face of moral hazard within the Obama administration.[15]

Geithner’s move to become a Goldman Managing Director later this year – rightly or wrongly – will signal to journalists, Wall Street, SEC regulators, investors, you, and me, that all is for sale.  The move will signal that private gain trumps public good, every time.

But back to cat-punching for a moment.  If we have no way of preventing Geithner’s move to Goldman, then we have no reason (except sheer naiveté) to ever expect tough decisions to rein in Too Big to Fail banks.  I for one cannot stand to have my neighbor’s cat live peacefully in that kind of world.  Consider yourself warned, Mr. Biggins.



[1] One of my closest friends served under Larry Summers at Treasury.  I’ve shaken Larry’s hand a couple of times.  I’m not breaking any news here to say that Larry is not a super fun guy to spend your working day with.  Let’s agree to award Geithner a Bronze Star for that portion of his professional career.

[3] The $30 Billion non-recourse loan arranged by Geithner’s FRNNY  in this transaction was simply awesome for JP Morgan Chase.  Non-recourse means that only Bear Stearns collateral backed the loan, so if it turned out its portfolio was worthless, JP Morgan could walk away with only the first 3% of losses.  What that means is that the Federal Reserve agreed to absorb up to $29 Billion in losses on JP Morgan Chase’s purchase of Bear’s $30 Billion asset portfolio.  It’s kind of like being given a million dollar house by the Federal Reserve, but if you decide you don’t want it later you just owe 30K, and they can’t go after you for the other $970K.  Like I said, so awesome.  Jamie Dimon, you owe free drinks to Geithner for the rest of his drinking life.  We would all love the option to walk away from 97% of a $30 Billion loan.   We should seriously all try to get one of these loans from the FRB-NY.

[4] Bear Stearns initially got sold to JP Morgan Chase for $2/share, just 7% of what Bear Stearns had been worth 2 days before, before the FRB-NY rescinded its loan offer.  Later, sort of out of pity and to avoid further litigation, Paulson allowed an upward revision of JPMorgan Chase’s purchase price to $10/share, still an extremely low price.

[5] If you have a taste for wonkiness and financial history like yours truly, I highly recommend this link.  But for the rest of you let me summarize the key point of page 24.  The size of the bailout for each firm you’ve heard of, via the AIG loans from FRB-NY, were as follows: Societe Generale: $16.5B, Goldman $22.5B, Deutsche Bank: $8.5B, Merrill Lynch $6.2B, and UBS $3.8B.

[6] To briefly review the history of this particular bailout: AIG got taken out by a series of lightly-collateralized credit default swap trades done with some of the largest Wall Street firms.  The trades were meant to be, from AIG’s point of view, a nearly riskless cash-flow stream based on insuring the credit of a large portfolio of high quality companies, as well as some highly rated but ultimately dodgy mortgage securities.  When the unexpected mortgage downturn happened, and some high-quality companies got downgraded, AIG’s Wall Street counterparts asked AIG to provide additional collateral to reflect a change in value of the trades.  The portfolios themselves did not necessarily suffer outright losses, but the collateral requirements to Wall Street meant they had to come up with many $billions in cash very quickly.  If AIG had failed to post collateral, suddenly many major Wall Street firms would have suffered immediate life-threatening cash shortages, at the worst point in the crisis, September 2008.  When the FRB-NY (along with Treasury) provided essentially unlimited funds to AIG, the rest of Wall Street got their collateral and bought themselves a bit more breathing room.

[7] When the FRB-NY went back in November 2008 to ask, you know, if maybe Wall Street would give some of that AIG money back because it kinda looked bad at the time, Wall Street told FRB-NY, essentially, to go fuck themselves.  The whole report of Wall Street’s response is in the link in the main text above, but, linked to again here for your convenience.

[8] This $20 Billion exceeded the $25 Billion already invested by the US Treasury to shore up Bank of America in October 2008, and the extra $20 Billion legally could not be offered without creating an entire special work-around program just for Bank for America, called the Targeted Investment Program (TIP).  Bank of America said, “thanks for the TIP.”  See what I just did there?

[9] Again, these latter guarantees were non-recourse to Bank of America, and the Federal Reserve pledged to absorb 90% of losses after the first $10 Billion write-down.  Again, non-recourse meant Bank of America could default on loans from the government without any negative hit to their credit.  It also meant that the Federal Reserve, again under Geithner’s leadership, took on (up to) a theoretical additional $100 Billion liability so that Bank of America would complete its purchase of Merrill Lynch, all in the name of bank stability.

[10] Details and a review of the rationale behind this move are here, starting on page 23.

[11] Incidentally, isn’t a bonus an optional reward for a job well done? I’m just going to go out on a limb here and say that AIG executives, more than ANY other financial executives who kept their jobs through the Crisis, should not have been rewarded for ‘a job well done.’  Were there any forced clawbacks of bonuses at AIG?  Nope.  Not one.  To steal a phrase from my favorite sports writer, I will now douse myself with kerosene and light a match.

[12] However, I will note that Geithner’s longtime financial benefit to Goldman Sachs and a few other surviving banks far exceeds by multiple billions of dollars the comparatively miniscule compensation of a few million dollars he’ll receive as a new GS Managing Director.  It’s really the very least Goldman could do, to put him on the payroll for a few years.

[13] Or more commonly, his senior staff members.  Wall Street has long considered the SEC a joke for this reason, as the only way to get well compensated as an SEC executive is to cash in on your position for a senior role at a Wall Street firm after a stint supposedly regulating the Street.

[14] Ok, I know you’re all groaning out there at my sudden earnest patriotism.  But I stand by my statement and it’s not based in patriotism.  Why does the dollar, despite our weakened government credit, continue its role as the dominant reserve currency?  Why do M&A transactions worldwide get done by US-based law firms, and financial litigation gets fought in US-based courts?  Because we are the least corrupt place in the world for financial transactions, that’s why.

[15] Paul Krugman lays out Geithner’s role within the Obama Adminsitration in his review of recent books on economic policy “…it is Tim Geithner, Obama’s treasury secretary, who appears, even more than Obama, as the decider in this saga. In contrast to Summers, whom [one of the authors] Scheiber portrays as a flexible, reformist Rubinite, willing to alter his views in the face of evidence, believing in particular that shareholders of bailed-out banks could and should pay more to taxpayers, Geithner is described as a doctrinaire Rubinite who viewed his primary task as one of restoring financial market confidence, which in his mind meant doing nothing that might upset Wall Street.”

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Book Review: Nickel and Dimed – On (Not) Getting By in America

Most of the books I review on Bankers Anonymous purport to give insight, for the non-financier, into how Wall Street works, a main theme for this site.  This book review, however, aims to give Wall Streeters insight into the life of the woman who cleans your house.

Barbara Ehrenreich engaged in stunt journalism in order to write Nickel and Dimed: On (Not) Getting By in America.  She temporarily shed her middle class, educated life in order to understand the working poor.  Over the course of six months, she worked minimum wage jobs and tried to pay for shelter, groceries and other expenses on only her monthly take home pay – an impossible task for her.

She apologizes upfront for the stunt by acknowledging the artificial short-term nature of the experiment as well as her advantages over the typical working poor in the United States.  She is white, native English-speaking, highly educated, in excellent health, and very motivated.  And yet the challenges she faces in paying for basic food and shelter would – if we are honest with ourselves – break most of us down.

Ehrenreich works for $2.43 an hour – plus tips – at her first job in Key West, FL at a hotel restaurant.   Next she moves to Portland, ME to juggle a maid job at $6.65 per hour with a similar low-paying job in a nursing home.  Later she works in the ladies clothing department at a Minneapolis Wal-Mart.  Typically, a single job leaves her short on rent and food money at the end of the month, although she lives in low-rent places such as a cramped, out-of-the-way cabin, a weekly-rate hotel, and a dingy, off-season trailer park.  Juggling two jobs, a theoretical solution, leaves her exhausted and physically unable to perform the first job.  It never quite works, and there’s seemingly no way to get ahead for the working poor.

Ehrenreich’s prose is funny[1] enough to lighten the burden she feels at the indignities of pee-testing, preposterous middle management patronizing, personality testing, and polyester uniforms.  She illustrates in specific ways[2] how the poor live in a parallel universe from you and me, even though they are stocking shelves or pouring coffee right next to us.

Ehrenreich’s writes about her experience during a boom time in America – 1998 – when unemployment reached a record low and corporate America complained about a dearth of workers.  This makes her narrative all the more compelling today, as in even the best of times the working poor have little chance to afford basic material necessities.

Although I read the book years ago when I worked on Wall Street, during the past few years of the Great Recession I’ve thought frequently about Nickel and Dimed.  We often hear a television commentator or political leader speak ruefully about the “middle class jobs lost,” as if that’s the national tragedy.[3]

It really gets up my nose, however, that we find tragedy in “educated, middle class people being out of work,” but we don’t focus on the persistent national tragedy of people who have been in recession all along.  Yes, the Great Recession threw a high number of white collar folks out of a job.  But the GR narrative stresses ‘white color’ jobs, by which I mean the image of ordinarily highly employable people suddenly struggling, rather than the large number of long-term working poor or under-employed people.

I really do not mean to sound indifferent about the tens of thousands of wonderful finance jobs lost in the Great Recession, or the millions of middle class folks who have struggled in recent years, but I do find the obsession with the middle class, rather than the working poor – the true underclasses in the United States – a curious omission in our American economic narrative.

The national unemployment rate rose from a low of 4.5% in 2007 just prior to the Great Recession to a current rate (in mid-2012) of 8.2%.  The African-American unemployment rate meanwhile has remained high at 8.3% and 14.4% respectively, nearly twice the national rate in 2007 and in 2012.

Are the 30% of Americans in a persistent state of underemployment, unemployment, and poverty invisible?  Yes, they are.  In this Great Recession, we just ignore them, because their situation is assumed to be unchangeable.

Both political parties shy away from acknowledging the working poor or people in chronic poverty. It seems only the “middle class jobs lost” are worth lamenting.

From the Obama “Jobs and Economy” page: “For years before the economic crisis, middle-class security had been slipping away. Wages stagnated while health care costs soared.”

From the Romney “Jobs and Economic Growth” page, we get a helpful “Middle-Class Promise Gap: Unemployment“ [LINK has been taken down with the end of the campaign.]

You will not find either candidate for President discussing the working poor or the persistent underclass in the United States.  I guess the working poor and unemployed don’t vote in sufficient numbers?  They certainly don’t donate enough to campaigns to matter.

The cone of silence increasingly ignores the American reality of wealth stratification.[4]

I currently live in the one of the poorest large cities in the United States, an urban environment with persistent poverty rates around 25% of the population.  For children under age 10, closer to 30% are growing up in households below the poverty line with a similar rate of undernourishment.  Their poverty was real before the Great Recession, it is real now, and because few leaders seem concerned about the issue, it will be true for the whole next generation to come.

In my hedge fund business, I invested extensively in municipal tax liens[5] in upstate New York.  Many upstate New York cities barely noticed the Great Recession.  Instead, decades prior to the recession, the regional Rustbelt deindustrialization kept them in a depression characterized by high rates of poverty, declining population, and falling real estate values.[6]

A permanent recession in some regions and in some population groups is the real story.  Nickel & Dimed is the real story.

My guess is anybody who reads this book review lives well ensconced in the middle class or above, and spends little time thinking on a daily basis about the working poor or the nation’s chronic underclass.  I’ll be the first to admit I certainly don’t.  Instead, my day – like yours – is full of what may be called ex-banker problems, and of course, cat videos.

Ehrenreich’s Nickel & Dimed gave me insight into the way millions of my fellow citizens live.   If more people should understand how high finance works, it’s even more essential that high finance folks understand how millions of their fellow citizens are getting by, or not, in America.

Please see related post: All Bankers Anonymous Book Reviews in one place.

 

 

 


[1] In writing this review I found myself struggling unsuccessfully to find something funny to say on the topic of the working poor and underclass in America.  Her specific experiment had light moments, but humor kind of eludes me on this one.

[2] Multiple restaurant co-workers live out of their cars because they can’t afford the rent anyplace near their place of employment.  Grocery shopping for healthy perishables proves impossible without a real refrigerator or kitchen.  Working slowly can be rational when you’re paid by the hour.  Neglecting antibiotics or doctor’s visits because of the cost can be devastating to your health and ability to work.

[3] It is certainly terrible to lose one’s job, and I do not mean to be callous about middle class folks who got laid off in the last few years.  The great risk for a middle class person who joins the unemployment ranks is really falling into the huge underclass, at which point he will be effectively forgotten in the national narrative.

[4] Which is why I was happy to interview a member of the 1% to speak candidly about his life here.

[5] As an investor, I purchased from municipalities a lien representing a senior claim on real estate for which the property owner had not paid City or County or School or Water taxes.  After the expiration of a statutory period of time, my firm had the right to foreclose on the real estate.  Many municipalities in upstate New York have a constant need to sell tax liens because of persistent tax delinquencies.  That of course reflects the relative poverty and declining real estate values in the cities and towns of the region.

[6] For investors who would like to know just how depressed the situation is in some upstate New York cities, perhaps my real world example will provide a point of comparison.  I sold a seven-unit residential building (acquired via tax lien foreclosure) in January 2011 for $75,000.  While two of the units needed a little improvement, three of the units had renters, providing cash flow on the building.  And I was happy to sell the building just to be rid of the risk.  That upstate New York city is not coming back any time soon.

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Interview Part II: Greek Businessman On European Sovereign Power vs. Local Greek Power

Please click above to listen to full interview.

In the first podcast with Mihalis, we discussed the excessive size of the Greek government, and the challenges and opportunities of entrepreneurship during the Greek crisis.  During that same conversation Mihalis went on to discuss with me his solutions for Greece.  He envisions a radically strengthened European Union, in which the Greek state withers in favor of more unified control from a federal Europe.  Combined with that, ideally, he imagines local politics still under Greek control.  Finally, and interestingly to me, Mihalis spoke about his father, a prominent businessman who took over as mayor of Thesssalonika, Greece’s second largest city.

Mihalis: I have many radical views. I don’t want to, you know, take them public yet.

You know Greece can, as it did in the 18th century, the Greek ideal, the Greek nationalism. Greeks were used by the European nationalists in the 18th century to create the nation state.  In many ways you know the ideas of democracy, a nation that creates its own state, it was formed – it was inspired – by Greek ideals.  And now there’s a second opportunity in which Greece can become the, an example of deeper European integration.  With loss of sovereignty, national sovereignty.  Because at the end of the day the solution is very simple but no one wants to tell it like it is.  You have to sell assets.  And it’s not very easy to do. It’s not very easy, but it’s not too hard to do, if you want to do it.

Politicians are afraid that if anyone’s going to say that, they’re going to be blamed for being traitors or whatever.

Mike: have Greeks benefited from unification with the rest of Europe?

Mihalis: Of course!  That goes without saying.  Not only because of the level of standard of living, it’s also a question of giving us access to a much larger market.  It’s become a lot easier than before. It is made tourism a lot easier – more transparent, more efficient.  We think about Greece as basically three things to offer. Shipping, which is a main area of excellence in the world; Tourism – we have good real estate; and the products that this real estate produces: good wines, olive oil – good stuff to eat because it’s a blessed place.

And these things have become more accessible with the euro than before. Of course, they become more expensive as well because in Greece we didn’t have a good adaptation.  So when we did switch from the Drachma to the Euro, there was a hidden inflation that really ravaged society.

Mike: As you know, my parents vacation in Greece and they’re the classic tourist – for a month a year they spend their retirement money in Greece.  But it got about twice as expensive when they joined the Euro.  As my mom has worried to me about “what happens if they leave the euro?”  I said “that is something you should look forward to.  If they’re back in Drachma everything is half price again!”  Which is the way it was when they first were going to Greece.  From a balance of payments, or tourism perspective, shouldn’t they just leave the euro?

I know you disagree, but I’m trying to play devil’s advocate a bit.

Mihalis: I don’t disagree, it’s more a question of a better remedy.  It really depends on how you assess the symptoms.  If you have to amputate you have to amputate.  Leaving the euro for Greece would be tantamount to an amputation. It’s something that’s really wrong, if it’s the only way to save the patient is by cutting off his arm.  I still feel there are other remedies.  Although I’m a pessimist by nature I still hope that there are some healthy forces in Greece that can team up with more visionary – more powerful forces in Europe –  for deeper integration because there are more benefits than disadvantages to deeper integration overall, for the whole.

My radical view is that, if you had Greece lose part of its sovereignty so it could be the experiment of European integration.  It might be unrealistic or utopia what I’m saying but, I don’t see any other way out.  Because if you don’t create some radical changes, in the way the political system works and in the way culture affects self-government, it’s not going to work.  So you’re right.  There’s no reason to help, so kick them out.  Let them not be part of our problem. And whoever has connections to Greece… Maybe let the tourists go there, and find the Drachma was cheaper and that’s it.

But there are two forces inside Greece that are still fighting since the inception of the state in 1821.  It’s between

  1. Modernity and Westernization, versus
  2. Orientalism, and Backwardness, and no change.

It’s kind of like the Euro is a conviction, a belief, that we could be more modernized.  We can be more close to what Europeans and the West expect us to be.

The most admirable thing about the US – and that is why the US has become so strong – is that you have a local government which can take care of things efficiently, and then you have a federal government that deals with the outside and inside whole of the body. In Europe you could take that example. Greece could already have institutions to run regional governments that could fertilize or be pollinated by European experts, people who run things well abroad, take best practices. The problem is we don’t have the best practice rule; You call in someone who has made it in some way, who succeeded in doing something, and really try to make it work.  And then you have a blended society that has a common goal in mind which is to make it work.

MIHALIS ADVOCATES FOR RETAINING LOCAL GREEK CONTROL FOR CERTAIN THINGS LIKE CITIES, BUT CEDING SOVEREIGNTY TO THE EUROPEAN AUTHORITIES OVER BANKS, BUDGETS, AND BORDERS.  THE LOCAL CONTROL ISSUE IS PARTICULARLY INTERESTING WITH MIHALIS BECAUSE HIS FATHER GIANNIS, A WELL-KNOWN BUSINESSMAN, RECENTLY BECAME THE MAYOR OF THESSALONIKA, GREECE’S SECOND LARGEST CITY.  GIANNIS IS A KIND OF ANTI-POLITICIAN, WILLING TO SHAKE UP THE STATUS QUO TO CHANGE OLD BAD BEHAVIORS.  I ASKED MIHALIS IF HE THOUGHT HIS FATHER WOULD BE DRAFTED TO BECOME PRESIDENT OF GREECE.

 

Mihalis: There’s been a lot of talk about it in Greece.  Writers and journalists and many people have proposed, have just tossed his name as a potential independent guy that could come and sort of create a stable platform on which different forces can be synthesized. But I think he knows, he’s aware of his limitations and he always wants to focus on his scale.  And his scale is at the city level and I think he is committed to that.  You know he didn’t run into politics for the power trip.  I think he ran because he felt that he could offer and do and make a difference at the city level. I don’t think he could make that difference at the national level.

But I think he’s an example of what I’m talking about.  The global/local combination where you can have people like him who fight corruption who fight this venality built into the parliamentary system in Greece. Who have run successfully a business, who can fire people at the local level and hopefully improve things at the local level which are relevant to the people in their everyday life.   Then you can have people of much larger magnitude that can run the larger federal institutions of Europe.

For example the immigration problem is not a Greek problem, it’s a European problem.  Instead of sending an army to Afghanistan, why don’t we have an army that actually goes out to Greece’s frontiers because these are actually Europe’s frontiers.  Just an example.  Why have 6% of Greece’s GDP being squandered in armaments?  For God sakes! Who are we scared of anymore? Turkey? Why is Turkey going to invade in the Greek islands? Why are we afraid of the Russians anymore and we’re going to keep a big standing army in Greece which is useless anyway? It’s money used for corruption with German suppliers of arms and big politicians facilitating the sales.  We’ve seen it. Where the big money is it should be federal.  I’m not saying that you don’t have corruption at the large scale in the US or another federal system but I think you can put checks in place that are more transparent, and more rational, more systematic.

If European leadership could rely on people like my father at the local level to keep people happy in their everyday life, and they can then run macro-economics, to stabilize economies and create a little bit of a new a new growth model.

Mike: My impression is after reading New York Times profile of your father  that he’s the type of person that if he was in the United States and we were going through the crisis that Greece is going through, he would be immediately drafted as a leading contender to run the country.  At least the United States, everybody loves the anti-politician.  And the guy who just, practically, gets it done.  For 20 years that I’ve known you, I know your father’s never been involved in politics.  And yet here he suddenly shows up running the second largest city.  It’s fascinating to me.

Mihalis: Yeah but he was always, always involved in collective affairs.  He always cared about the collective.  He ran for the Communist Party eight years ago.  In the local politics. My mother had cancer, I had kicked him out from the office when I took over the business with my brother.  And he needed to do something.  So he said okay I’m going to offer what I have of my time to local politics.

He ran with the Communist Party because he didn’t believe in what the big parties were doing. Because the big parties were basically reshuffling the cards.  Exchanging votes for jobs.  And the Communists never had power.  So he wanted to, say, be clean. Of course he didn’t really share the dogma of Communism.  His ideology is basically “you care for the guy next to you.”

He always you know when he was a big businessman they used to call him the “Red Industrialist” because he was helping the suppliers or vineyard growers establish their own vineyards, estates, and wineries and brands.  So he basically undermined his own power.  But he knew that that was an evolutionary stage, that his road was to encourage, rather than be opposed to it.  He knew it was going to happen anyway.  I mean there were 50 wineries in Greece 30 years ago and now there are 500. And there might be even some more.  Small-scale mom-and-pop operations like in Italy and France. So Greece is becoming more Europeanized. It hasn’t been a straightforward road but it’s happening.

Mike: MIHALIS, MY PHILOSOPHER FRIEND, CONCLUDED OUR DISCUSSION BY TALKING ABOUT WHAT  GREECE MEANS TO EUROPE, AND WHAT EUROPE MEANS TO GREECE.

Mihalis:  I do think Greece has always played inspirational role.  Greece could become the model for the post-nation-state Europe.  If you think about it, since the imposition of the King in France until today we’ve run on the same model. Two world wars, European unification model, using the paradigm of the nation state.  And now we see the need for a more multilateral kind of model.  And Europe has a lot to learn I think both from China and the US as to how a more pluralistic federal system can be established. And Greece would be the hardest place to run it. If you can do it in Greece you can easily do it in any other country.  For the cultural reasons I mentioned, because Greece is also a very Oriental country deep down.  It’s not part of the homogeneous core group of Europe.

Yes, from an economic point of view, exiting the euro would be a short-term good solution to the crisis.  But it would signify, and it would imply, a sort of refutation of Europeanism and of what Greece could become in the future. So I would like to hope and insist and keep fighting for more European success on Greek soil.  Because Europe – what Europe stands for – is something I believe exemplifies the highest values of human societies today.  The combination of achievement in terms of social organization and balance between society and the individual is really coveted. It’s really envied by the rest of the world.  And I would hate to lose that.  I would want that for Greece.

But maybe it’s not meant to be.  Maybe Greece has to remain sort of an oddball.  It takes a little bit of social engineering to get there.  And right now I’m not occupied with this. I’m trying to sell some wine. That’s my contribution to the problem.

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