The Greek Tragedy Continues

March 16, 2015

few years ago, Poland made the first such move to ‘nationalize’ a portion of its pension system. Nationalize probably isn’t the right word though: steal is more appropriate. Given the fact that most Americans probably can’t even point out Poland on a map, the news was given little attention. If something doesn’t happen right in our own backyard, it might as well happen on Mars.

Most folks you talk to will call one such occurrence of an oddball event an oddity, an anomaly, or a coincidence. Two usually gets people’s attention. We now have a second, bolder incidence of a pension grab that just became ‘legalized’ in our favorite PIIGS country – Greece. The troubled Mediterranean nation just can’t seem to catch a break. It borrowed more money than a hundred Greek economies could ever hope to pay back and for some unknown reason it insists on remaining a slave to the European Benevolent Society, aka the European Union, and its bankrupt and irrelevant currency.

Now that pension grabs are once again on the radar, will this issue now receive the attention here in America that it requires? Fat chance. The American news media penned a few obligatory stories about this latest rip-off, then promptly dropped the entire issue down the memory hole because out of sight is out of mind after all.

So once again, it is up to us concerned citizens to outline the latest in the Greek tragedy. It would be wise to pay attention since all of these scams are initiated somewhere, then tested a time or two before they go full spectrum. Whether or not any one wants to admit it, America has the same vulnerabilities. We don’t owe the IMF per se, but we might as well since the not-so-USFed is about as American as the corrupt IMF.

To sum up Greece’s new reality:

Cash reserves of pension funds and other public entities kept in Bank of Greece deposit accounts can be fully invested in Greek sovereign notes, according to amendment to be submitted in parliament, country’s finance ministry says in e-mailed statement.

  • Cash reserves can be used for repos, reverse repos, buy and sell-back, sell and buy-back transactions.
  • Pension funds, public entities will be able to claim damages from Greek state in case of overdue repayment, partial repayment. 
  • Pension funds are not obliged to transfer their reserves to the Bank of Greece, according to finance ministry statement.”

The latter two points are laughable. Pension funds would have the ability to claim damages from the Greek government in the event the government can’t make it’s payments or fulfills obligations to the pension funds only partially. This is tantamount to conspiring to throw B’rer Rabbit into the briar patch. Obviously the Greek government is broke or it wouldn’t be ripping off pension funds to send the money to the IMF in the first place. The following quotes from Greek ‘officials’ give the desperation with which they speak as well as underscore the unexplainable dependency on the IMF:

“The new government has always emphasized during the election campaign in January and December last year that it would honor its obligations to the IMF,” says Jens Bastian, an economic analyst for Macropolis, an independent organization, which provides data and analysis on Greece.

“It has not moved away from that position. Greece’s exposure to the IMF is considerable and it’s not in the interests of the Greek authorities to default on any IMF obligation.

The Greek government has identified IMF payment as an absolute political priority. You may be able to solve repayment obligations in March. The bigger problems are looming around the corner in July and August.”

So the Greeks are now in the same boat as the rest. They can only rob the pension system so much, then it is gone and there are still amazing debts to the IMF. To top it all off, additional loans from the IMF are contingent on the repayment of existing debt. Talk about robbing Peter to pay Paul.

Here’s another analyst’s take:

Dr. Michael Arghyrou, director of the MSc in International Economics, Banking and Finance at Cardiff Business School agrees, says Greece has two options: default on obligations and leave the Eurozone, or agree on a third bailout package. “[Greek prime minister] Alexis Tsipras clearly signaled that he does not want to risk Greece’s exit from the euro,” he says.

“The public statements of government officials suggest they'll use reserves of pension funds controlled by the state and also money given to Greece by the EU such as agricultural subsidies. There are statements they will be used to pay for the IMF loans.”

“This amount of money due in March will be paid, but it only postpones hard decisions”, Arghyrou assures but adds that these measures will not be sufficient to repay what is owed to the ECB in the summer.

A classic example of kicking the can down the road – very similar to what America continues to do with regards to its ballooning debt and broken entitlement systems. Notice that you don’t hear much of anything about the national debt here in the US. A few years ago, arguments on Capitol Hill regarding the debt ceiling caused gyrations in the stock market that were violent enough to give most observers a good case of whiplash. Now the debt ceiling as a concept is all but gone and it is spend, spend, spend.  And the accounting gimmicks to make it all look right continue to mount as well.

But you can only kid a kidder for so long. The rest of the world is in the fabrication business too so who is the USGovt really fooling? For now, the American consumer is probably the largest (and likely only) constituent group that fails to grasp the gravity of the situation we have allowed ourselves to be put in. This is evidenced by full parking lots at trendy new cookie-cutter restaurants selling overpriced and undersized meals to yuppies all too eager to swipe the plastic and call themselves rich. After all, the government has told them that being in debt makes one rich. Politician after politician parrots the idiotic myth across the TV screen day and night. Debt is good. Liberating even.

This same group has continued to endorse multiple simultaneous military and economic conquests around the globe while remaining blithely ignorant of the problems on our very doorstep. The bail-in model was crafted in America, but tested in Cyprus. The pension rip-off scam was crafted in the Eurozone and tested there, but does any thinking person really believe that these greedy narcissists will be able to keep their hands off of what is quite possibly the final crown jewel of western dominance? For as little as Americans save, the pension and retirement system in this country is quite impressive. Granted the distribution is skewed, but the pie is pretty large regardless.

And even in America we already have our very own example of pension plundering. I mentioned quite a few years ago that people should watch what happens with regard to the bankruptcy situation in Detroit, Michigan because it would be a signpost of sorts where the trend towards plundering and pillaging is concerned. The results:

“Under the plan, general city workers will endure a 4.5 percent base cut in pensions and the elimination of an annual cost-of-living increase. In addition, the city will seek to recoup $239 million from the optional annuity savings fund accounts of some general city retirees who were credited with interest earnings that exceeded the retirement system’s actual investment returns.

The pensions of police and firefighters will not be cut under the plan, but their annual 2.25 percent COLA will be reduced to about 1 percent.”

The numbers seem small, but when you consider the rising cost of healthcare and living expenses in general, the cuts are significant. The 4.5% base cut plus no cost of living increase is going to set these folks back quite a bit. The other side of the coin is that the pensions were unreasonably lavish to begin with. That is not the issue, however, it is that we now have an example in America where income sources that were previously thought to be sacrosanct and beyond the scope of municipal action are, in fact, quite vulnerable. How many Americans do you venture took definitive action based on what happened in Detroit? Granted, there really wasn’t a thing the Detroit folks could do. There is no way to divest of most pension systems, and contributing is mandatory. The only way ‘out’ is to retire and many people can’t afford to do that early just because some bankrupt city scrounged a few bucks from public sector employees.

But, like Greece, Detroit has similar issues. A recent New York Times article notes:

“But the pension system that the settlement leaves behind has some of the same problems that plunged the city into crisis in the first place — fundamental problems that could also trip up other local governments in the coming years. Like many other public systems, it relies on a funding formula that lags the true cost of the pensions, and is predicated on a forecast investment return that the judge, Steven W. Rhodes, himself sharply questioned during the trial on Detroit’s bankruptcy plan.

Moreover, if Detroit finds itself confronting another fiscal crisis in the near future, it can no longer tap the museum’s art collection, which many saw as its top asset.”

So, like the Greek tragedy, the Drubbing in Detroit that was downplayed so happily by the media was staged by a series of one-off events, the art collection being a prime example. And the model itself is still broken so has the problem really been solved or just put off once again for another group of even less fortunate folks to deal with?

“But Detroit is a blighted city and this is one incident” the naysayers bray. Kind of sounds like Poland doesn’t it? This is incrementalism at its finest. Slowly but sure, the examples will continue to pile up. It might take a while before we see America go the way of Greece and when it does it may not be nearly as dramatic, but as sure as you can rely on baseball season being right around the corner, so too can you rely on a pension or retirement ‘haircut’ sometime in your future. This is a brave new world and there’s a new barber in town and he specializes in shredding your formerly posh retirement.


Andrew W. Sutton, MBA Chief Market Strategist Sutton & Associates, LLC

Andy Sutton is the Chief Market Strategist for Sutton & Associates, LLC – a Registered Investment Adviser in Pennsylvania. His focuses are econometric modeling and risk management. The firm specializes in wealth preservation and growth and recognizes the validity of non-paper assets in achieving a balanced approach. The firm is also currently working with a growing clientele towards avoiding the risks outlined above.

Man has had the ability to separate silver from lead for as far back as 4000 B.C.