What crashed Greece's banks

Michael Lewis wrote a great article on the Greek collapse in Vanity Fair. He traveled to Greece and interviewed government employees, tax collectors, and monks (explained in the article). Lewis wanted to know what caused Greece to crash so spectacularly. Unlike most of the world, Greece's banks didn't use the credit expansion to load up on subprime U.S. securities and other garbage. The cause for Greece's collapse is much simpler... It's socialism and good, old-fashioned government corruption. Greek banks took all of the new money and lent it to the government. And the government did what it does best... stole and squandered. As Lewis puts it, "In Greece, the banks didn't sink the country. The country sank the banks." In the excerpt below, Lewis notes the excesses in Greece's public sector...

The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece's rail passengers into taxicabs: it's still true...

The Greek public-school system is the site of breathtaking inefficiency: one of the lowest-ranked systems in Europe, it nonetheless employs four times as many teachers per pupil as the highest-ranked, Finland's. Greeks who send their children to public schools simply assume that they will need to hire private tutors to make sure they actually learn something. There are three government-owned defense companies: together they have billions of euros in debts, and mounting losses.

The retirement age for Greek jobs classified as "arduous" is as early as 55 for men and 50 for women. As this is also the moment when the state begins to shovel out generous pensions, more than 600 Greek professions somehow managed to get themselves classified as arduous: hairdressers, radio announcers, waiters, musicians, and on and on and on. The Greek public health-care system spends far more on supplies than the European average—and it is not uncommon, several Greeks tell me, to see nurses and doctors leaving the job with their arms filled with paper towels and diapers and whatever else they can plunder from the supply closets.

The excesses in Greece's liberal government pay policies are only rivaled by the government's inability to record costs. When Greek minister of finance, George Papaconstantinou, took his post last October (his job was to solve the mess), he discovered billions of dollars of government programs that were never accounted for. The Greek government never had a third-party verify its statements... That's one reason the news from Greece continually worsened... The government continually discovered it owed more and more money.

Anadarko has been partnering with BP in the deep Gulf of Mexico because it's the best in the world at finding sub-salt dome oil reservoirs common in the Gulf. Anadarko earned its 25% interest because it found the well. It has no responsibilities for exploiting or operating the well. That burden falls on BP and its lessor, Transocean (RIG). Despite the clear-cut lines of liability – which would seem to completely exclude Anadarko – the stock has fallen farther than BP itself! – Porter Stansberry, June 2010, Put Strategy Report

Porter closed the Anadarko position in late July for a 40% gain in six weeks.

The interesting thing about silver is the metal is starting to trade a lot like "real money" in the past month. Since much of silver is consumed in industry, it often trades like an industrial metal... like copper or zinc. Investors and traders usually buy and sell it based on their expectations of global economic growth. Most people don't know this, but silver traded almost in lockstep with both oil and the S&P 500 this year.

In the past few months however, silver has soared, while the stock market and oil have languished. The S&P is barely up in the past two months, while silver has climbed 9% to reach its highest level since March 2008. Gold is near an all-time (non-inflation adjusted) high. What's going on here?

Our guess is that silver has again become chiefly viewed as a "hard money" safe haven, like gold. Despite the lull of bad news regarding U.S. deficits and a euro meltdown, these problems are still gurgling under the surface of the markets... and seasoned investors are accumulating more gold and more silver in anticipation of a potential crisis.

This is also driving the extraordinary move in junior gold and silver stocks. In a primary bull market for gold and silver, these stocks absolutely skyrocket. It's not uncommon to see these companies rise 100% in a month... or 1,000% in a year. As our friend and master speculator Doug Casey says, "you only need one" of these little moonshots to make an investment fortune. For example, had an investor placed $25,000 into Phase 1 recommendation ATAC Resources when Matt Badiali recommended in October 2009, he would now be sitting on a position worth more than $190,000.

Goldsmith comment: Matt's new advisory will not have "better" recommendations than his current Resource Report. It does differ from his current letter in two ways. First, it's a trading service, so he'll feature more, faster-paced recommendations. Second, the stocks in Matt's new advisory will be small... too small to recommend in the Resource Report.