Many people have read or watched the movie the Big Short, the author Michael Lewis wanted to know who made money on the housing crisis? In investing you can make money when the market goes up, down or sideways. In the book Boomerang written by Michael Lewis published by W.W. Norton & Company, New York, 2011 Mr. Lewis examines countries outside the United States and how they were affected by the housing market collapse. Mr. Lewis picked 4 countries – Iceland, Greece, Ireland and Germany all countries which had made the news prior to 2008.
Greece by all accounts is a beautiful country, it has the bluest of seas, it is the cradle of democracy and over time has evolved to the most indebt nation in Europe. They had the Olympics but cost overruns were the norm. They have structural problems – the national railway has annual revenues of 100 million euros against a wage bill of $ 400 million euros plus $ 300 million in other expenses. The average state railroad employee earns $65,000 euros a year.
The Greek government tried to make life easier for its citizens by lowering the retirement age to 55 for men and 50 for women in “arduous” job classifications. Over the years, more than 600 professions are considering “arduous”. Ministers who work in the public service leave government with the ability to buy million dollar homes plus a country home. It is system which change is not going to come quickly.
In order to make budgets work for the entry into the Euromarket, expenses were off the government’s books even though they paid it. The government had no Congressional Budget Office or there was no independent statistical service. The party in power simply gins up whatever numbers it likes, for its own purposes. In addition, the first task of a government seeking reelection is to pull the tax collectors off the street.
In Greece, real estate which can be taxed has two values – the actual value and the objective value. The idea is to declare the property as objective value pay lower taxes and eventually sell at actual value. It was believed all members of parliament were using the objective value to evade taxes.
Linking to dividend paying stocks, there are remarkably few people that want to pay more taxes. Most of us invest in programs which are not taxed or deferred tax when we eventually retire and expect to be at a lower tax level. Sometimes what is good for the individual is not necessarily good for the economy as a whole. We want the companies we invest in to make a profit every single year and ideally make more is better which can raise dividends each year. The President gave corporations a tax break, but most of it went to buying stocks or increasing dividends which helps you the investor. It does not necessarily help the company 5 years from now, but we will see.
There are more questions than answers, till the next time – to raising questions.