Sunday, June 19, 2011

Lessons from The Greek Tragedy

I've been catching up on my reading these few days. There is a backlog of books I wanted to read but haven't found the time until last week. I'm also watching what is happening in Greece very closely - there are many lessons here to be learned. Greece's problem is not difficult to understand. Greece has a population of 11 million, a GDP of US$329B and owes US$500B. Greece owes too much money and does not have the means to pay back. To put things into perspective - Thailand with a population 67M and GDP of $180B collapsed during the Asian crisis under a debt of US$100B. Thailand took 3 years to come back. For Greece we are looking at something like a decade or even longer.  How Greece got here is not difficult to understand:

"Initially currency devaluation helped finance the borrowing. After the introduction of the euro in Jan 2001, Greece was initially able to borrow due to the lower interest rates government bonds could command. The late-2000s financial crisis that began in 2007 had a particularly large effect on Greece. Two of the country's largest industries are tourism and shipping, and both were badly affected by the downturn with revenues falling 15% in 2009.[22]

To keep within the monetary union guidelines, the government of Greece has been found to have consistently and deliberately misreported the country's official economic statistics.[23][24] In the beginning of 2010, it was discovered that Greece had paid Goldman Sachs and other banks hundreds of millions of dollars in fees since 2001 for arranging transactions that hid the actual level of borrowing.[25] The purpose of these deals made by several subsequent Greek governments was to enable them to spend beyond their means, while hiding the actual deficit from the EU overseers."

[Source : http://en.wikipedia.org/wiki/European_sovereign_debt_crisis]

The Greek govt took on a lot of debt then hide it from EU with the help of investment banks like Goldman Sachs. When the financial crisis came, it couldn't service its debt.  Prior to the crisis, Greece was the fastest growing economy in Europe and proudly hosted the 2004 Olympic games.When things look good, nobody bothered to look under the hood and there were heaps of praises for the Greek govt and its fast economic growth. The lesson for us, Singaporeans, is never wait for things to happen then look for transparency - it is too late.  Transparency like sunlight is a natural disinfectant ...we have to be active citizens  - keep asking questions and demand greater transparency and accountability at all levels of govt. As Greece falls apart, the ordinary citizens are asked to swallow the bitter pill while the rich elites who benefitted most from the years of high economic growth simply moved their money and assets out of their country to avoid rising taxes[Link:Greek wealth finds a home in London ]. The Greeks had a bad tax collection system and the rich were able evade tax when the economy was doing well and they were most willing to pay. The lesson for us is keeping taxes low to attract the wealthy has little benefits for ordinary Singaporeans except the few in the wealth management business - when things go wrong, they will simply move money out and you will suffer a double whammy. For survibability in crisis is best for wealth to be more evenly distributed in society and proper progressive taxation to achieve that is best vs fixation with lowering taxes for the rich.

On 16 June 2011, when the Greek crisis threatened to erupt into a new global crisis as European leaders squabble over the rescue package, Under HDB's DBSS, Sim Lian launches the most expensive new public housing ever sold in Singapore - $880K for DBSS in Tampines[Link]. With an income ceiling of $10K, it means that these flats are priced at at least 88 times monthly income. If I'm not wrong, it translates to roughly using about half the income to service the debt over a 20 years period.  This is the best case since we are talking about people at the income ceiling so there will be people with even higher debt burdens. Whoever buys these flats assumes that things will be smooth economically for the coming decades - rather oblivious to the external environment. While the EU will likely put together another 'band-aid\ type rescue package for Greece to calm jittery markets in the next few days,  they are just kicking the can further down the road postponing a major crisis for another few months. There is also a small chance that the Greek govt collapses suddenly due to protests and infighting bringing forward this day of reckoning that will plunge the global economy to another crisis - one perhaps more serious and longer lasting than the 2008 financial crisis.

45 comments:

Musicwhiz said...

Hi Lucky,

Income ceiling for DBSS is $10,000, not $8,000.

But I agree with you that it's still super-overpriced at $880,000!

Cheers,
Musicwhiz

Lucky Tan said...

Yes, my info a bit outdated. Yes it is 10K but 10k is maximum income. Many people will be buying this and have lower income than 10k so their debt burden will be high.

Anonymous said...

Sim Lian said the price for their 5-room DBSS is not fixed yet. It is within a range of $685k - $880k.

Either way, $685k still seems too expensive for first-timers. Where's the value in buying such an expensive and small home?

Anonymous said...

"Thailand with a 67M and GDP of $180B" - typo ?

"Initially currency devaluation" -all your links does not work

Lucky Tan said...

anon 09:11,

fixed the typo and links. Imported from wiki pedia somehow the links got messed up.

Anonymous said...

The real lesson from the Greek tragedy is that dishonesty pays. Consistently, it has been shown that dishonesty is well-rewarded, if you dare to be dishonest on a big scale. The only dishonest people who regret it are those small-timers from shoplifters to robbers.

Let's look at the examples; Lehman Brothers, minibonds, AIG, Goldman Sachs, PIIGS bailout.

Alot of people have been utterly dishonest, and the bulk of them have walked away free and laughing to the bank. Some at most got slapped on the wrist, while it is the honest and hardworking Joes who have to foot the bill.

Who says crime doesn't pay? Wait...is dishonesty now a crime? But the crooks got away scotfree!
Goldman Sachs is still functioning as usual.

Lucky Tan said...
This comment has been removed by the author.
Lucky Tan said...

The lack of ethics sometimes pays for the unscrupulous but destroys society that is why we need a change in the rules of the game to restore some balance...and avoid the same fate.

It wasn't very smart of SGX & MAS to allow those chinese companies to come to Singapore and scam singapore investors. Or permit those toxic minibonds which American investment banks unload to Singapore investors.

Anonymous said...

Isn't it a crime to fudge the data and lie to EU/citizens that all your economics data are great but actually isn't? I don't believe there're money changing hands. that's too stupid to leave such trails. but i do believe some bankers got some nice little plot of houses along those beautiful isles called santorini so that they can bring their whores there to enjoy and boast.

Back on subject. That's why I fully agree with you on the transparency part - and specifically brings us to our GIC/Temasek. Now they want to put Tony Tan as President? Come'on we daft or what? Clearly this is a LKY move. Putting him there is like asking the ex-MD to quit his job and be an auditors to audit his own work..what's there to quibble? Safe hands my foot. We need a President who can ask the questions, understand the complexities of the two outfits (beyond what the 6 wise men will tell you") and make sure they have what they claimed they have!! And the govt of the day should cooperate with him as that's what the electorate want or singapore citizens deserve to know.

Anonymous said...

expensive is relative. Nobody ask you to buy. Yet, there will be those who can afford. but is it the end if you cant afford premium housing? truth is, there are many cheaper housing options but just don't ask to live in prime area for ntuc kopi-o price. uuless you are daft,blind, DISHONEST and a fucking hypocrite, in life, there is such a thing as a price difference between gourmet coffee and 3 in1 coffee.
first time home buyers better stay away from lives luxury if you are not capable or have the means to live it up.
similarly, if you can only afford a Nissan march, don't insult your intelligence by buying a Ferrari.
if you do, and no one is forcibg you,we will laugh at your stupidity but you may die under a mountain of debts.
moral of the story? a Nissan march will still get you from point A to point B. but Ferrari will get you the chicks.

dont complain. go and settle for a cheap whore if you lack the moolah lah.

Anonymous said...

Agree.. We need a president who can ensure that our CPF money is in order. Based on CIA And Eurostat data, our public debt ranked no. 9 worldwide at 102.4% of GDP. Much of which is internal debt, money government owed it's people by usage of CPF to buy government bonds. We need to ensure that our CPF money is there. Let's not wait for a Bernie Mardoff incident to befall Singaporeans.

Do the right thing, vote for a Tan Kin Lian, not a Tony Tan!

Anonymous said...

why?you think tkl is a god ah?once he elevated to high office and seated on a carriage with roman soldiers wiping his asshole, everything, like the miracles of charlatans preachers, will become clear as a bell is it?
the day when a roman emperor becomes endowed with such power is the day you get your backside fukked without you knowing it.

SE said...

//When things look good, nobody bothered to look under the hood and there were heaps of praises for the Greek govt and its fast economic growth. The lesson for us, Singaporeans, is never wait for things to happen then look for transparency - it is too late. Transparency like sunlight is a natural disinfectant ...we have to be active citizens - keep asking questions and demand greater transparency and accountability at all levels of govt//

I can think of 3 recent but separate instances that would immediately apply to what your post is trying to say - transparency in Govt, & the important role of EP here (assuming the present system works)

1) Bernie Madoff - A $65B ponzi-scheme, a colossal fraud that ran for 20 years! Follow the link for the full story.

Quote: Before it all went to pieces, Bernard L. Madoff Investment Securities appeared to be a charmed firm run by a tight clan. People believed in Bernie. Nasdaq made him its chairman; the SEC appointed him to industry panels; Congress invited him to testify. New York Senator Charles Schumer stopped by the office in the run-up to the Iraq war and gave a rousing talk on the trading floor. Everywhere you looked, there were signs that Madoff -- and by extension his firm -- had special status.

http://money.cnn.com/2009/04/24/news/newsmakers/madoff.fortune/index.htm?postversion=2009042412

2) Iceland Collapse -

Quotes:"The citizens of Iceland are demanding to know what happened, why it happened and who was responsible. The government has largely been unable to provide this information or show willingness to take responsibility for what has happened. The Central Bank and the financial regulator blame each other and the government blames the global credit crunch.

Considerable uncertainty exists with respect to the state of public finances. This is partly due to some numbers simply not being yet available, most importantly obligations arising from Icesave. The authorities have however shown reluctance to publish their estimates on government income and obligations. An accurate assessment on the likely level of public debt is urgently called for.
Limited and often contradictory information is available about events leading up to the crisis, what was known, and who had the responsibility to take action. The little public information available seems to originate from foreign institutions, and the information originating in Iceland generally takes the form of Icelandic public officials or politicians leaking to the press, or being interviewed in the media, possibly for reasons of self interest, rather than any desire to inform the public. This is unlikely to increase trust in those particular individuals, nor Icelandic authorities in general.

http://www.riskresearch.org/files/e.pdf

-------
Let's not also forget about Lehman brother & now the Greek collapse. I hope the above give a sense of paramount importance to the voters and citizens to hold their govt accountable. And we ourselves must also take ownership of the electoral process to demand for what we need/should know about the mothership = the people's reserves.

Anonymous said...

Dear Lucky,

excellent and timely piece.
Please keep up your good work. I have the habit of opening your blog every day!

Ken

Anonymous said...

Great posts. I also hope that there'll be worthy candidate who can come forward and give us all the answers..anyone credible but MIW.

The old/new batch of MPs were consistently "surprised" & caught off0guard by little things from "flood" to "transport/housing wores" to the nation's anger over the years. Why do I have to believe that there's one BIG rock "left unturned" that nobody dares to? In fact, I fail to understand where does the constitution say there's a gag order for the EP? 12 years have come and gone, and what do WE know about the health state of our assets/reserves/cpf etc after OTC's departure? It all went back to black hole again. How many 12 years does one have? How many 12 years does one generation have? This GIC now has 9 global offices/ 100 staff/ 52MDs and they can't even share key data with its people? Who's paying these bankers anyway? Why do they keep delaying CPF payout, come out with CPF life, pple don't have enough for retirement but yet they have the temerity to give out 14mths pension for retired civil servants/MPs in 1 lumpsum !!! WTF people..Who's raiding the reserves?

http://oxfordswfproject.com/2011/02/24/guest-blog-who-owns-swfs/

Anonymous said...

Another another good link here by this blogger on How we fund our SWFs and others..

http://atans1.wordpress.com/?s=SWF

Anonymous said...

The Greek tragedy is bound to happen; it's not a matter of 'if' but when. A case of sooner than later. As part of the PIIGS euro nations in trouble, chance of contagion and hence triggering a global financial crisis is very real.

This is not helped by the problem of US debt ceiling currently at US$14.7 trillion which needs to be raised further by the US Congress pretty soon to avoid a US government default.

The global outlook appears bleaker than ever and yet our local property market seems to defy gravity. Something must give eventually right? For those who are leveraged financially, good luck!

TanGooGoo said...

Sinkies will pay for the Cost of Ignorance..the Cost of EP $4.2m is small change in comparison.

Anonymous said...

To anon 11:51

If you have any dirt on TKL, please post and let TKL defend himself. Else we can only take it that you are spewing nonsense.

Going by rationale, TKL is preferred instead of TCB due to his past experience in NTUC Income managing vast amount of wealth. I don't see TCB having such experience and he may be easily fooled by the presidential council which is selected by PAP to "aid" him.

simonsays said...

yeah..started with Greek, then Spain, then Ireland, then Portugal..who's left. Watch it Berlosconi your time is up!
If you think how Asian has went through our crises, and that these sex-&-power-hungry white men from IMF and europe would have learnt their lessons from us..yet history repeat itself?
So, don't be too smug too asians. It could come back and bite you.. the americans are constantly hovering around your pile of money and see how they can suck you dry after they sucked themselves dry..
the rich elites have escaped europe/us & now they need to park their dirty money somewhere..where do they go? Asia..and SG provides them the safe haven...from mugabe to kim jong il to gaddafi you name it...they can come and wreck our lives while our govt enrich themselves.

Anonymous said...

Interesting that all 3 presidential wannabes are ex PAP, only degree of adherence and servitude to the central dogma differs. Can a political leopard ever change its sports - essentially is do we know who do we know best - the one that means what he says and does he he said he would. Hmmmmmmm vexing as we cannot catscan their soul....who has a clue how to decipher....

Anonymous said...

If there are no flats that cost below $400K in Sg, yes...by all means, complain or bring down the government if you like. But when ppl complain as if entry homes are all $800K and above,you know these ppl are dishonest and with hidden agenda.

Anonymous said...

To anon 13:22

what hidden agenda? the "public" outcry is legit for everyone to see..that man-in-the-st or young married couples want is affordable housing so that they can start a family and contribute to population growth.
I applaud singaporeans for standing up and voicing their "feedback" to govt before it become an norm (ie quiet mean implicit acceptance). In fact what business doe sthe govt has in outsourcing public housing to private sectors in the first place, then claim that DBSS is not HDB. Had this ministry still be under Mah Bow Tan, it would be "justified" away to demand and supply, and most of all - asset enhancements works!

If you still take "feedback"/"response" as noises, you can continue to do so all the way to 2016 by all means.

Anonymous said...

//we cannot catscan their soul....who has a clue how to decipher//

still too early to tell..in fact, too early to endorse any candidate until the nomination cards are cleared..otherwise, waste of breadth. Given how some people are a "pro" in "procrastination" better let the final candidates be announced first before we "accidentally" "disqualify" them out -- if you know what i mean!

Still, fingers crossed that we have worthy candidates who will come forward to do the right thing for its nation and people. All the unnecessary hurdle is like breaking a GRC..it takes resilience and passion, sincerity to do so.

Anonymous said...

anon 13:54

I think you are missing the pt here. the pt I am making is: why are you looking at $800K unit when there are under $400K flats you can buy?

you see, our spoilt generation want it all.they want best location and built at garage sale prices.

the last I checked, we are still living on planet earth you know.

Anonymous said...

HDB suppose to take care of citizens by building affordable homes. $880,000 for a pigeon hole is ridiculous. I urge HDB to scrap the DBSS scheme. People with money should buy private property instead.

We are not asking for HDB to sell flat at garage price of $2 as alleged by writer above but around $100,000 to $300,000 which is more affordable and reasonable. HDB can still make a profit if SLA can sell land to it below market rate. Left pocket to right pocket, all within MND's control.

comicrelief said...

There's a comedy that come out of these contagions, be it europe or US. SG gahmen gets to sell our citizenship for a cool us$20m per passport!!!!

You see, they keep upping their ante now. First the FW. then the FT (pmet) now they want the FIS (rich millionaires)..haha, do you see anything wrong with this? Every segment across the society also kena. Dr Susan Lim is only the first known local elite who will face the music. Who's next? These FIS will now come in with bigger entourage, and soon unlike the local elite (they only sit on fat bungalows and collect rent) that don't contribute much, the FIS will at least invest and bring in jobs/new businesses. Again, our gahment trying to "import" immediate success for creating foreign entreprenuers, instead of investing in local ones..(or is already too late given how their GLC and MNC strategy have pretty much drained out any creativity/passion in the people. This is going to be fun..meantime, watch for some nasty societal changes to come. Sit back and watch the show.

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/06/18/prweb8581435.DTL

Anonymous said...

so if there's a flat that cost below $400k, but this time they cut short the lease term to say 50years. Do you think you are still getting a better price? Sadly some pple will. In fact they're calling for shorter lease so that they can keep the price "down". But actually is the same inflation game or worse. You pay the same price as 10yrs ago, but get less. Daft.

Anonymous said...

cannot imagine what property prices will be in singapore in ten years time. is there a future for singapore?
the only way out for greece is to sell assets and monuments.

Anonymous said...

http://singaporerecalcitrant.blogspot.com/

Transparency - the dreaded word.

What is stopping LKY or any high ranking officer to syphon off some of our reserves or sell off some items from our reserves to cover some investment losses for example, will our sleeping President be any wiser if he/she knows next to nothing about our reserves?

It is possible that some reserves might be under the name of certain proxies only known to a very select few; but who's to check? Surely they are not just in buildings/sites, no cash or gold?

If the voters think that the 6-9 Opp municipal MPs in the House will do that (thus sufficient) they better think again. And do we think the current Nathan know? He doesn't even dare to speak to the citizens when pressed, why else do you think he will have spoken out for you?

Don't be fooled by all the quick remedies that the PAP has shown you post elections. The fact is they will do ANYTHING to show you they listen.engage. The means to that end is to stay in power. Why so? Why are they so afraid of transparency? In LKY's words If you have done nothing wrong, you have nothing to hide.

So Singapore Voters, what kind of President do you want to see?

Anonymous said...

The smart ones will buy those DBSS at 880K. You can never lose. If you can't pay, they will defer payment and lengthen the mortgage. They cannot afford to repossess and turn people out onto the streets - there is simply not enough space for all of them to pitch tents. If price goes up in 5, 10 years, they will have big profits. Afterall your CPF is not touchable; in 30 or 40 years time, imagine what the min. sum is going to be like. So how can you lose at 880K when the PAP cannot afford to have another party taking over Tampines GRC?

Anonymous said...

The message is clear, but how many Singaporeans can get the message and dare to act?

Nobody really knows the status of our investments, our assets and our debts other than the govt

That's why we need transparency

Tan Kin Lian may not necessarily be the best choice, and may not be well liked by some, but he is the closest we can find

Do we want another "i know my responsibility, i know my job" elected president that is paid millions a year just to shut up and keep quiet?

To avoid Greek saga from happening in SIngapore, we need transparency and we need accountability

We lost these both in the last general election

But there is still chance to put things right again, by voting Tan Kin Lian in for the next elected president

Anonymous said...

to anoy dated 19/06/11 13:20

Quote "Interesting that all 3 presidential wannabes are ex PAP"

I believe that Tan Kin Lian was not an PAP or ex-PAP

Tan Kin Lian spoke up against MAS and represent helpless investors in the mini bond and DBS saga, without which MAS would most certainly have given their standard reply to the investors

TKL also lend his weight behind NSP and SDP as a guest speaker

TKL is risking quite a lot by now standing out and standing for EP. He could simply have shut up and keep quiet, and he can still get by pretty well

Anonymous said...

Funny why no one raised this. Allowing Sim Lian to charge this exorbitant price, HDB can later charge you more for similar BTOs.

Do not forget that HDB pricing policy is priced to the MARKET. The market is telling them S$880k is okay.

But do you know why? Because we have a HUGE number of young couples who have waited too long for suitable housing to come along and will just accept this because they cannot continue to ballot blindly with no clear time horizon any more.

Beware you stupid and daft Singaporeans, allowing Sim Lian to do this will come back to bite all your children one day.

Serve you right you daft and dumb Singaporean.

JRT said...

To any 20/06/11 @ 11:40

When pple pays S$880k for BTO in Tampines, they are probably eyeing for the potential in Tampines as a huge Lifestyle will be built soon

Also, there are numerous industrial buildings up including Changi Business Park

And of course not forgetting the existing 3 shopping malls and a generally well run estate

I know a resale EA (about 120 sqm) near the stadium was just sold at S$650k

So maybe people see the potential in Tampines and are betting that the price will go up further, unlike other estates?

Anonymous said...

What can I say....

Buying a home is not a BET....

Pity the daft Singaporean.

Anonymous said...

Good article.

Yes, the elites in Greece can take their money elsewhere or live comfortably.

The same can be said of most rich Sporeans who can be ignorant of what's going on in the govt.Some have profited handsomely from the GOVt asset enhancement scheme.Sure, they can say they took the risk. They have an elitis' view, so that those who are hardworking but are not like them it'll be their own fault.
The Govt is cultivating a culture of elitisim.

Anonymous said...

To Anon @ 20/6/11 10:20

Tan Kin Lian is a former PAP member. Although he never ran for election as an MP, he was part of the party for 30 years, including at three-year stint as Branch Secretary. He left in 2008, I believe.

Anonymous said...

The debts owed by countries such as Greece are no doubt very large.

But let us not forget that they are countries: Ireland,Iceland,Portugual
USA, etc..

Nations with debts are treated very, very differently from your neighbourhood ah long's methods.

Because of the scale and complexities, it always end up as an old school tie network.

Not one single nation wants to have war on their hands. So they will extend all the credit, kick the can down the road.

As far as individuals are concerned, it does not bother me.

I still have my char kway teow, mee pok and car. They can otang all they want!

Anonymous said...

Mr Lucky Tan,

I have said this b4 and may I repeat it again. I deeply you effort in educating readers like us.

You are able to explain to us, laymen, a complicated matter in simple and understandable

You, on your own, are providing an out put equivalent to an established think-tank organisation.

May I say, THANK U, again.

Tan Kin Lian said...

I want to answer questions about my past involvement with PAP. I was branch secretary of Marine Parade from 1976 to 1977 (3 years). The main role of the branch secretary was, at that time, to take care of the weekly meet the people session. (Not so glamorous or influential). I left to focus on being the chairman of the community center for 6 years, before leaving Marine Parade.
I was cadre member of PAP for about 30 years, but inactive for most of this period. Those familiar with the PAP hierarchy knows that the most cadre members have little influence also, unlike the MPs and the CEC members.
Those points have been explained in my blog (www.tankinlian.blogspot.com) and in my election website (www.tankinlian.com/president). Go and read my detailed statements there.

Anonymous said...

Hi Lucky, don't quite follow your article's sudden detour to DBSS fiasco.

Was it a typo or maybe I need to reread it again?

duckless said...

The original chi flat iron was released as a professional salon straightener. After gaining popularity on the market the cheap chi flat iron was later released for personal consumer use. If you are a professional stylist or someone who loves straightening their chi hair straightener before leaving for work the Chi original ceramic flat iron is one styling tool you cannot live without. Unlike other wholesale chi flat iron before its day the Chi model was developed with moist ceramic heat technology that does not burn or damage the wholesale chi hair straighteners.

Anonymous said...

Hi & Hello. In my personal opinion. The property prices are into an illusionary inflation. Once this silly debt crisis is over when the europe govts swallow their bitter pill instead of pushing middle incomes to low to pay the inflationary prices for foods etc. we show see a 20% drop in illusionary price of property. People seem to think they are very smart in buying condos. but when sell who is going to pay that price? Europe?

Anonymous said...

There is nothing wrong with people being dishonestly about info. its called agency theory. you can see it through the homes to offices to stock markets right down to grocery shop. at the end of the day, its information.