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Saturday 10 May 2014

The collapse of PONZI Schemes and PONZI countries

Getting closer to the European Elections of 2014 i realize how differently the most important European issues and data are presented to the voters, in each country, struggling to gain their individual support. Issues and data that a serious and educated person can find quite weird or/and funny if analyzed in the 28 country-members' perspective . And i realize that my major problem, trying to explain what is really going on, is mostly my friends' lack of knowledge. They give me plenty of space and time to explain them my researches since i am the only one who studied European affairs but at the end they don't really get it. After so many hours trying to explain them how the money is "legally" disappearing, in Cyprus and some other countries, and where it really goes, most of them find difficulties to understand it ! Who does it, why, why nobody pays and why if someone pays the rest don't.. They just don't get it since nobody gave them the data, as it happens in the most countries..

When you create a non viable system (either it is a company or a country) sooner or later it will collapse. It's simple maths, otherwise called as the rule of sustainability or the law of nature or even as the invisible hand. But, until the day of the total collapse, few people (the elected people, the public staff, the privileged bankers, the high income staff) are legalized to receive benefits the same time the majority (the tax-payers in the most times) is unfortunately obliged to pay for them. After the collapse (the temporary Minsky moment), fewer will still receive a (reduced) salary and the other (fewer) benefits but the majority of the people will still have to pay for these salaries and benefits although many of them are jobless. Until the day of the total collapse comes, otherwise the ultimate Minsky moment. The collapse is an inevitable result due to greed, stupidity and corruption, the three factors that led Greece, Cyprus and many other countries to bankrupt.

First time i started separating normality from Ponzi schemes, while-collar crimes and bankruptcies was the Barings case, back in 1995. Numbers of that incident  fascinated me and after many years of searching i started understanding how easy is to bring collapse due to lack of regulation or willingness.. It helped me understand very soon that the Cyprus Stock Market was in a downgrade that finally led to a huge collapse. It is quite interesting that a few years later the same scenario of Barings has almost repeated at Société Générale where after the investigations had been completed just one trader was convicted ! Is is quite interesting that in a huge corporation like Société Générale an amazing fraud was developed by just one guy. And the most interesting thing was that too many people above Jérôme Kerviel (the convicted trader) received amazing bonuses based on his trades. So, those people above Kerviel had more interest not to see (or not to expose..) was Kerviel was doing because they received the bonuses for as long as he was trading that way. And when the Minsky moment appeared, Kerviel was the only one who paid the bill ! Lucky Société Générale, that Minsky moment was temporary, Barings totally collapsed.

The Cyprus Stock Exchange and the Société Générale case were proofs that some people have interests to keep illegal things going on. They enjoy too many benefits for as long as it continuous and when it will stop somebody else will have to pay the bill. If you simulate the same data to a country, Cyprus was last year the recent Barings, as Greece was some years before. Many people, mostly in the public sector and the banks, received fixed salaries, raises and COLA (Cost Of Living Allowance) benefits for decades, creating a huge bubble to the rest of the system. Nobody cared or worried when these amounts were received by those people, the most of the years based on loans and one-time taxes. They had absolutely no reason to "disturb" what was going on. The tax-payers paid the account the time of the temporary Minsky moments (that happened regularly within the period), the same tax-payers paid the total cost after the ultimate Minsky moment appeared, last year. A typical Moral Hazard.A typical white-collar crime !

A few years ago, as an MBA student, i was given as assignment regarding the Global Economic Crisis.
My main point (after 22 years of experience in the business sector) was that what really happened was because the law was not working properly. The law in Cyprus is manipulated for many years. A law that has gaps, allows to greed and stupidity to dominate the system as long as some legalized robber barons are able to find money to steal. The Madoff case, in 2008, reveals that even the countries that have enough experience in financial crimes, like the USA, are in many times not capable to understand what is going on, until it is too late. Although my essay amazed many of my friends and business partners, for my professor it was a failure for many reasons i tried to understand for several months. Firstly, although we had to deliver an essay limited around 2000 words, my professor accepted another essay of 4000 words, which named excellent and emailed it to the rest ! How is possible for a university professor to give an assignment of 2000 words and accept an essay of 4000 ? In Cyprus, everything is possible, especially something like this which it seems to be something regular ! Waiting for a re-evaluation i found out that my MBA had no re-evaluating procedures although the whole university had. So i had to accept that a part of my university was allowed not to follow the official university procedures. Simulating this to the ground of Eurozone, some countries believed that they were legalized to develop an individual strategy, against the interests of the rest countries, and if they run out of money they rest would pay the bill. 
What an illusion !

A quick answer to the issue "why the problem is repeated" is that the people who analyzes a short term behavior or event are in most cases not able to understand the long term effects of it, especially  if they don't have the experience of what was going on the previous periods, in order to see it happening and understand  that something is caused due to previous failure. After months of demanding for a re-evaluation and a decent grade (and still examining my possible failure the same time) i finally received two more failing reports from two other professors of the same university ! But, until then, another university professor, from a highly respected private business school had already published an article to support my theory, pointing out why there is no investigation and punishment, especially if you are part of a local elite. Same issue happened some years ago in the United States where Bernie Madoff developed and run an incredible Ponzi scheme. For more that a decade Bernie Madoff was legalized to run his system, based to the fact that he was an important part of the local high society ! Nobody wanted or tried to investigate him because it sounded ridiculous to do it !

The problems countries, like Cyprus, Greece or even USA, have to deal in the recent years are transparency and legitimacy. Two factors that always help the white-collar crime "legally" expand. For example, back in 2011 i noticed that the European funding that came to support the small and medium size companies of Cyprus couldn't reach the beneficiaries, for some reasons.. Since our banking system was able to block the money and keep it to the banking treasury it finally "contributed" to our official bankruptcy in 2013. The banks received "cheap" money and they had no reason to deliver it since their profit was too low.. These banks failed to do their job, the same time the most of the other 17 member-countries were working and providing better results for their community.. So, the gap was unavoidable. And a more recent and personal case. Last year, i was accepted in Paris for one year as Erasmus student.Till the day i left Cyprus nobody gave me any rules regarding the Erasmus program. That was a first clue that something was going wrong. The only available data was the names of the European institutions i could choose from and that i was going to receive 600 euros per month for a partial cover of my expenses. For some reasons (still under investigation by Cyprus and European authorities) my home university firstly prepared me a half year contract with less funding than they should. That was the second clue that something was going wrong, since less funding was an essential key factor to force me abandon my studies, since i couldn't afford the costs in Paris without that funding. After demanding the full year contract and the proper funding for the period, so i could go for the Erasmus studies, i finally got the contract but my home university never honored the obligation to give me the funding on-time. So, the time i went to Paris to start my classes (without the funding) i obviously couldn't stay. And after that, (the ultimate clue..), my home university asked me to pay for my Erasmus studies in Paris, although the Erasmus studies have no cost ! These people couldn't think that i was able to receive the official rules from anyone of the rest 27 EU members or any European institution and see what is really happening ? 

So, if we accept that some European countries are allowed to adopt transparency for their people and some other don't, we have two different results, a positive for the transparent and a negative for the corrupted. So, after the EU officially put Cyprus to the corrupted countries list of the Union we can no understand that these countries, like Cyprus, either must change their attitude soon or exit the European family. 

Although the procedures were obviously manipulated and illegal,  an obvious white-collar crime, nobody seriously investigated or analyzed the data i still keep, not the Cyprus government, nor the European Union ! And here there are the similarities of Barings, Société Générale, Cyprus and EU.. They really don't want to know.. They find it better not to know.. Was my home university using the European funding for other purposes? Quite possible, since all my mails verifying my story were distributed to the local and European authorities, showing what it is still going on in Cyprus by a local university as it happened some years ago by our banks .. But, until the day somebody officially, seriously and carefully investigate and provide me with the results of the investigation nobody can tell for sure (except the only fact that we already bankrupted, and we still examining why..). And it will be convenient and "legal" for everyone who follows the existing procedures to repeat it ! So, in a European family of 28 member countries it is quite obvious that, even today, each country that follows a normal and transparent procedure creates a positive effect. Any other country, like Cyprus, creates a Minsky Moment. Temporary or ultimate..

A few nights ago, in a talk-show of our public television, it was declared for first time, by a member of our national parliament that the people that caused the collapse of the Cyprus Stock Exchange back in 1999-2000 seem to be the same that created the bankruptcy of our banking system last year. It is quite obvious that if our parliament and governments took serious measures in the part fifteen years, just after the Cyprus Stock Exchange collapse, last year's bankruptcy could be avoided. Unfortunately, the corruption of our system was led to reach a level that could not be viable any longer. In Chrystia Freeland's book "Plytocrats" the same thing is described to happened in the USA, for many years. People with advanced knowledge and experience are able and "legalized" to create a domino problem from one financial sector to the other and since public authorities don't have the expertise and knowledge, they keep doing it. The subprime mortgage crisis was just a newer step..

As a citizen, 2013 was my first year to realize the levels of corruption and the similarities than a government has with Ponzi schemes.There is absolute no possibility to enter a public hospital for exams, except you know someone inside. If your situation is urgent you either pay a  private hospital or you die. Public hospitals and other public services (such as public schools and public universities) are vital parts of a Ponzi finance. Paying only few people to cure or educate thousands of people makes the system not viable. These people receive continuous raises and benefits but in order to do it, the way you want, you finally exclude the younger generation from entering the market since all funding is distributed to few. You could hire more doctors, teachers and professors but the system can't afford paying them. Because existing people earn too much and you decide to keep it that way !!! So you either minimize the wages or you increase the taxes. If you refuse to do it, you become Greece or Cyprus. And a Troika comes to do it.. When it is already too late because your Ponzi already collapsed..

All these Minsky scenarios and recent actions allowed me to create deeper analysis in order to examine the levels of efficiency and corruption in the European countries. A research that revealed what today's EU really is ; A group of 28 nations, some with full transparency, some partial and some without. Few countries, most of them in the North and Central Europe goes well, due to transparency and legitimacy, the majority of the countries in the center are in a break-even point, the countries of the south part collapse easy due to the lack of transparency and legitimacy, just as the most of the African countries do. Many previously serial default countries are today part of the European Union and/or the Eurozone. Some fixed their problem permanently, some other still try to hide it as long as they can, some are still bankrupt, officially or not. Countries with no previous experience, such as Cyprus and Greece, might be easily transformed to a Ponzi Scheme and collapse, otherwise create the Minsky moment.

It is quite obvious that the recent subprime crisis, in the USA, the Madoff Ponzi scandal, the epidemic of bank failures the previous decades (and the upcoming..) , proves that too many countries (even the USA) are always vulnerable due to the lack of information, education and regulation. Charles Dickens' "Little Dorrit" is today a classic evidence that bad things happen, in every time, for people and countries without a wide dispersion of investments and danger. You need authorities to regulate and these regulators need the proper education. The continuous and serial failure of our system proves that there is a huge gap between those two. If the USA suffered recently from a huge failure like subrime and ponzi how is possible for a country like Greece or Cyprus to prevent it and protect their people when the leaders and the regulators have no interest or no experience to do their job ?

The basic goal, at the beginning of the European Union was to help all member-countries achieve higher levels of quality.You can't have the same levels of quality, information and education in Greece, Cyprus, Italy and the United Kingdom, especially when the public personnel of any country uses every possible way to obstruct their people from having equal rights to search for answers and finding solutions. If regulation doesn't work as it should, it is very easy to expect the collapse. Either we suffer from greed, stupidity or corruption, citizens need to have healthy institutions, capable to investigate, prevent and punish at early stages. The adopt of Euro was a dream and a nightmare. It helped some of the countries to harmonize their economies and increase trade and business but it exposed the corrupted members and forced them to collapse since there was no alternative to their "elite" individual interests.

European Union could become a body that will help the European Nations to work better and efficient, otherwise they will let the growing inequality to give an end to the Union. My personal opinion, after so many analysis, is that since it is easier to export our local corruption to the European Institutions, instead of importing knowledge and expertise, the most possible result is a European divorce, sooner than you imagine.. 

Countries that respect sustainability and countries that never did are today part of the same family, creating a lethal cocktail, since the low-income countries that receive the European benefits don't honestly and fairly distribute them to the majority of their people. Countries working as Ponzi schemes are much worse that companies working as Ponzi schemes.Ponzi companies collapse because they run out of money, sooner or later. Ponzi countries transfer the debt to their younger citizens and they create new and higher levels of debt. So, Ponzi countries are worse that Ponzi companies because the countries can't collapse as the companies do. So the final decision is too obvious.. We have to fix the existing problem.. OR.. We leave  the whole EU collapse..Because as things work these days, it is better and much more safer to pray for a collapse, if there is no willingness to fix the hidden problems..

In the next publication we will examine why France is the next Eurozone problem..

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