Tuesday, February 23, 2010

Greece, the Euro and the Currency Quandary

The following is entirely fictional.

Dour winter winds chilled the yard at the Butner, NC medium security facility. Inmates tried to exercise under the muddy gray overcast, their unprotected fingertips aching from lack of warmth. Jorge stepped around the weightlifting area and approached the older man seated on a bench.

“Hey, Bernie.”

“Hello, Jorge.”

“Bernie, I was wondering if I could get your advice on something.”

“Sure. What’s on your mind?”

“I got a chicken tamale for you, made the way you like. I figured it would help you think.”

“Oh, thanks so much, Jorge. My brain is firing up already.”

“Bernie, I got a prob . . . Well, my sister in Bogota has a problem.”

“What’s that?”

“She has some money, some U.S. dollars. And she’s trying to figure out what to do with them.”

“You mean, what to spend them on?”

“No. Like what to put them in.”

“You mean what to invest in--stocks and bonds?”

“No, I . . . she don’t like stocks and bonds because, you know, the big guys in New York, they got control over those markets. No one else knows what the stocks and bonds are really worth.”

“I understand that point. Uh, how much money does she have? I mean, depending on how much she has, you might be able to find special investments.”

“Bernie. . . Can you keep a secret?”

“Sure, Jorge. I’m very good at keeping things secret.”

“Okay, she has about ten million.”

“Ten million dollars? Holy cow. How did she get that much?”

Jorge paused and glanced around before speaking. “She . . . ah . . . found it on the sidewalk.”

Bernie smiled ever so slightly. “I guess that can happen. Investing such a large amount can be complicated. I mean . . . well, let me ask, is it in a bank account now?”

“No. Cash. Cash only. That’s the only way I do bus . . . , well, it was cash when she found it.”

“Investing that much cash would be complicated.”

“I . . . she can get it . . . how, you say, washed?”


“Yeah, that’s it. Laundered. You don’t have to worry about that Bernie. I can . . . she can take care of that. The problem is what to wash it into. That’s the hard part. I was thinking . . . I mean, for her. I was thinking for her that maybe we put them in Euros. The dollar isn’t so strong any more. And the Euro has gone up a lot. But then I hear that there’s a problem with Greece or some place, like they got too much debt or a lousy government budget, so the Euro is going down. What’s going on there, Bernie?”

“As I understand it, Greece and some other European countries borrowed a lot of money, and they’re having trouble paying it back. These debt problems make their economies grow slower. Because people think Europe's economy is weakening, its currency, the Euro, is worth less.”

“The TV was saying something like Greece or someone was hiding some of their problems. You know anything about that?”

“I gather that Greece and other European countries did these fancy deals called derivatives, which disguised some of their debt so they didn’t look so financially weak.”

Jorge frowned fiercely. “I don’t like that sneaky s___. A dude who pulls sneaky s___ on me is trying to f___ me. I don’t do no sneaky s___. When a guy tries to f___ me, I f___ him back. And, you know, I f___ him to his face, ‘cause I don’t f___ around.”

With well-practiced diffidence, Bernie glanced at Jorge, seeing eyes that could pierce steel. “I’ll bet you don’t, Jorge.”

“You can take my word on that, Bernie. I mean, you know that lying bastard that put me in this place, you know, he testify against me in court, saying I’m a narco trafficker, and the judge throw in me jail? When I get out . . . “ Jorge drew a finger across his throat.

Bernie practiced his diffidence some more. “I hope we get some warmer weather soon.”

Jorge threw back his bulky head and laughed thickly. “I like you, Bernie. You stay cool. Okay, so what we doing to do? I mean what do you think my sister should do? No Euros, ‘cause I don’t like that sneaky s___. How ‘bout the Japanese yen?”

“The yen has done pretty well overall, because Japan is basically a wealthy country and has a strong manufacturing sector that exports successfully. But the Japanese government is constantly trying to push the yen down because a weak currency helps their manufacturers export.”

Jorge thought about this for a moment. “You mean they f___ their own money?”

“Well, I don’t think they look at it that way. But you’re not far off the mark.”

“S___. Then, what’s a good thing to put the money into? I mean, I don’t want gold, ‘cause then I . . . my sister has to protect it, ‘cause there’s a lot of bad people that might try to steal it, and you know, someone might start shooting, and then s___ really starts to happen. “

“I agree, Jorge. Gold isn’t an optimal investment.”

“Then, what should I . . . my sister do?”

Bernie thought for a moment, and sighed. “Sometimes, Jorge, there aren’t any great investments. The markets fluctuate, and in a down cycle, you may just have to try to hang in there until things get better. Maybe it wouldn’t be a bad idea if . . . uh, your sister just held onto the dollars.”

Jorge frowned at the walls that would mark the limits of his freedom for years to come, and remained silent while a nearby sparrow chirped. Then, the edges of his lips lifted to betray his amusement. “So, is that how you pulled off that, what you call it . . . a party scheme?”

Bernie paused, and then said, “you mean a Ponzi scheme?”

“Yeah, that’s it. Ponzi scheme. That’s how you did it, right?”

“What do you mean?”

“You say the markets sometimes go down; not always up.”

“That’s correct.”

“So when you promised people whatever, ten or twelve percent steady, all the time, no bad times, they want believe it ‘cause otherwise they gotta deal with the market going up and down, and they don't like that. And then they give you their money.”

Bernie brooded before saying, “That about sums it up. I made it easy for them to give me their money and they made it easy for me to get it. We all took the easy way out. Legally, I’m the bad guy. But it’s easier to kill sheep than lions.”

Jorge took a deep breath, and said, “I ain’t no sheep. I had to work hard . . . I mean my sister had to look hard on the sidewalk for this money. We ain’t gonna put it where people pull sneaky s___ or these other people they f___ their own money. Maybe we just have to, like you say, hold the dollars for now.”

“I think that’s the right attitude, Jorge. Playing games with debt and currencies aren’t odds on winners. People who don’t look for the easy way out have better chances in the long run. You can take that from me.”

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