Pragmatic Lessons from the Greek Situation

[reepicheep]

Has anyone said "travel to Greece when their currency collapses" yet?

Funny, I got a spammy email yesterday about booking flights to various Greek destinations. I'll wait until after the currency collapse/riots, I think.

BTC: I keep it in Coinbase. I don't have very much, mind you, but I've used it a few times to pay people who do one-off stuff for my website or otherwise help me with computer problems. I've never used it to buy actual physical goods, like food, though that's theoretically possible. I think if I really thought there would be a full on economic collapse AND I was going to lose my job (unlikely)/was already not working, I might be more inclined to gamble on Bitcoin as a store of value. I don't know that I'd keep it in Coinbase, though.

[Dragline]

Yes, if Greece exits and goes back to the drachma, there will be a lot of opportunities for travel and buying Greek assets cheap for people with dollars and euros. The economy could go from complete stagnancy to a feeding frenzy in a very short period of time.

In many prior sovereign debt crisis, including Germany in the 1920s and Mexico in the early 1980s, there comes a point when all the assets and their stock markets go on a fire sale. I think in the German example, one might have bought most of Daimler's stock for the price of a couple automobiles at one point. (It's in "When Money Dies") But its very tricky, because usually anything with a financial component gets destroyed. Things that involve hard assets and businesses that sell boring, tangible products produced locally usually come back strong, though.

[tonyedgecombe]

I was wondering if keeping funds in a Paypal would be a good way for Panos to avoid the capital controls.

I think PayPal is treated as a bank in the EU so is somewhat different from PayPal in the US.

[jennypenny]

The problem I have with many of the money-related suggestions is that they wouldn't work in the US. If you leave the US, they still 'own' you and include you in any haircuts. You can own metals or real estate, but the taxes can be high if you liquidate which could be worse than the haircut. You can hold cash in any flavor you'd like since we aren't cashless (yet), but having or carrying significant sums of cash can get you into a lot of trouble.*

You can store up food and medicine, and you can diversify your finances, but the best defense against this stuff is not needing any money to get by. I think a good thought experiment wrt Greece is to ask yourself if you're a capable enough person to be able to ride out that kind of situation, or at least secure enough with your own capabilities to simply walk away from it all and start over somewhere else.


* WaPo ran an article this week about a guy who had $75K confiscated at Richmond airport even though he was traveling domestically (you have to declare that much cash if you're traveling internationally).

[Ego]

We spent yesterday wandering around the ruins of the ancient city of Ephesus and this morning at the museum. One room in the museum traces the history of the various coins used here by the Greeks, Romans, Byzantines, Ottomans, Turks and many others who sacked the place and held power for a time. It brought home the temporary and fragile nature of currencies.

[almostthere]

@ Ego, This may be a derailment of the thread (please move to a separate thread if appropriate), but here goes on some more info about bitcoin and private keys. If you keep your money at coinbase in a coinbase wallet, coinbase has the private key to the wallet. See this coinbase page:

https://support.coinbase.com/customer/p ... ivate-key-

A repeated theme in the history of bitcoin is that exchanges that kept the customers private keys were hacked and the coins were stolen, think Mt. Gox.

If it were me, I'd buy the coin on coinbase and move it to a wallet that does not keep my private key, like a blockchain.info wallet or just a paper wallet.

[Ego]

Almostthere, that is exactly the kind of advice I was hoping for in this thread. Thanks.

Jenny, I wonder if the US government could reach into a bitcoin wallet. They had to catch Ulbricht with his computer open to get at his assets.

http://www.wired.com/2015/04/silk-road-1/

[Dragline]

Relevant articles about what some people there are doing (has a familiar ring in this group):

http://wtop.com/europe/2015/07/greek-vi ... -own-food/

[RealPerson]

"I don't really care about how Greece got here or what they should have done from a macro perspective."

If I were living there I would have paid attention to how Greece arrived at their situation and had an exit plan long before the banks were on the verge of collapsing. If you are one of these suckers that are waiting in line to withdraw I think 70 euros per day than you have already lost the game. At this point it is about survival.

If a pension buyout is available I would take it in a heart-beat. There is no way in hell that country is going to honor all those pensions. Than I would buy items that are easily converted back to cash, if I couldn't send my money to another country in a stable account. I would also barter to get what I needed as much as possible for quality goods that have redeeming future value. Then I would leave.

The problem is that a few million of your countrymen are going to be having the same thoughts, which is going to devalue anything you are trying to accomplish. Nothing like massive competition in a crisis situation. That is why caring about how your country, town, province, whatever "got there" really matters. Then you won't become the guy on the news last night who was crying because he hadn't eaten due to his pension check not arriving.

Totally agreed with everything ffj said. It underscores why saving for ERE is better than a pension, because you control one but not the other. Having useful skills or products (e.g. food!) allows you to barter. No ATM or bitcoins needed for that. Finally, don't believe the government. They will say whatever. Do your own thinking and act accordingly. Moving euros out of Greece should have been done at the first sign of real trouble. Especially since there was no exchange rate penalty. Still, that is easy to say for a skilled ERE person. Harder to do for an old widow in rural Greece who does not have the understanding, skill and means to protect herself.

[jacob]

@Ego & Panos - You have to look at who is capable of changing the deal for any specific institution, that is, who has jurisdiction over the particular institution (there's a reason most US corporations are registered in Delaware). E.g. the monetary union has some jurisdiction over the Greek banking system. As does the Greeks themselves. PayPal insofar it's a US corporation (see tonyedgecombe's post above) does not fall under that. Neither does any foreign bank (to Greece ... not sure about Europe). However, the Greek authorities and banks are in a position to say that they won't allow transfers to paypal. They could by law demand Panos disclose all his paypal holdings and tax him (just like the US does with foreign accounts). As per the wiki incident, Paypal could also decide that Panos is a problem and freeze his accounts. As per jennypenny's comment, the American arm is VERY long. The US DOJ has gone after banks in other countries for violating US law. And the foreign banks accepted that.

This is the point of counterparty risk. As soon as you hand your money (or life for that matter) over to someone else, it becomes their asset and your liability even if we like to feel otherwise. Possession is 9/10 of the law.

PS: Don't take this as actual suggestions as to what is specifically safe from deal breaking and what is not. Even the Swiss changed the deal on bank secrecy.

[Scrubby]

The name of the European branch is Paypal (Europe) S.à.r.l et Cie, S.C.A, and it's registered as a bank in Luxembourg. They are however following a special E-money directive from the European Union when it comes to the deposits. I don't know the specifics of the differences, but it's not quite like a bank account. Under normal circumstances the depositors have much better legal protection in a bank.

Regarding Bitcoin I don't trust any of the wallets that are accessed through the web. Nothing beats heavily encrypted local offline wallets when it comes to security, but you'll still most likely need to trust the authors of the client you are using.

[RealPerson]

The problem I have with many of the money-related suggestions is that they wouldn't work in the US. If you leave the US, they still 'own' you and include you in any haircuts. You can own metals or real estate, but the taxes can be high if you liquidate which could be worse than the haircut. You can hold cash in any flavor you'd like since we aren't cashless (yet), but having or carrying significant sums of cash can get you into a lot of trouble.*
..
* WaPo ran an article this week about a guy who had $75K confiscated at Richmond airport even though he was traveling domestically (you have to declare that much cash if you're traveling internationally).

I once boarded a plane to South America (not to smuggle money or drugs). At the jetway were a couple of agrents with dogs trained to sniff money. The US is very serious about this. As to the guy with the $75K in cash, I assume they would say he did that to avoid wiring money and triggering the $10k alert. The US considers anyone carrying significant amounts of cash as guilty until proven innocent.

[GandK]

...
* WaPo ran an article this week about a guy who had $75K confiscated at Richmond airport even though he was traveling domestically (you have to declare that much cash if you're traveling internationally).

The US considers anyone carrying significant amounts of cash as guilty until proven innocent.

This really bugs me.

I'm glad you started the thread, Ego, but this (nations going bankrupt) is one of those discussions that makes me want to go dig a bunker and fill it with MREs and Pointy Things.

[almostthere]

@Scrubby

Regarding Bitcoin I don't trust any of the wallets that are accessed through the web. Nothing beats heavily encrypted local offline wallets when it comes to security, but you'll still most likely need to trust the authors of the client you are using.

Could you post some links with further info on 'heavily encrypted offline wallets'? I am very much in the learning phase and I'd like to understand this idea more. Maybe we should start a separate bitcoin security / wallet thread?

[Scrubby]

Could you post some links with further info on 'heavily encrypted offline wallets'? I am very much in the learning phase and I'd like to understand this idea more. Maybe we should start a separate bitcoin security / wallet thread?

A password is encrypted by sending it through an encryption algorithm, usually only once or twice. Brute forcing passwords is mostly done using CPUs or GPUS. Depending on the algorithm, a CPU may be able to test 1M passwords every second and a GPU can test hundreds of millions because of its extreme parallel processing capabilities. The Armory client (https://bitcoinarmory.com) lets you configure how much time your computer should have to use to decrypt the wallet by encrypting it multiple times. If you set 1 second then an attacker with the same CPU will only be able to brute force test one password each second instead of 1M. It also lets you configure how much memory should be used to decrypt the wallet. GPUs have a limited amount of RAM available to do work like this, so the parallel processing advantage is removed and at best it will be a little faster than a CPU.

Using Armory you can make multiple wallets very easily, which can be put on backup devices and imported back into the client when you need them. This lets you have most of your coins in offline wallets. You can also make a paper backup of the wallet using strings of letters and numbers. Unfortunately you also need to have the Bitcoin Core client running, or Armory won't be able to access the network.

[jacob]

...
* WaPo ran an article this week about a guy who had $75K confiscated at Richmond airport even though he was traveling domestically (you have to declare that much cash if you're traveling internationally).

The US considers anyone carrying significant amounts of cash as guilty until proven innocent.

This really bugs me.

I'm glad you started the thread, Ego, but this (nations going bankrupt) is one of those discussions that makes me want to go dig a bunker and fill it with MREs and Pointy Things.

I think this is a good example (sorry to use you as an example GandK ... FWIW I feel the same way) of why one can be in the middle of something and fail to take action that might seem clear in retrospect or even clear to those not in the middle in the present. Imagine a frog being slowly boiled---but then again; given it's more likely that the temperature would go down again, what is a frog to do? It's very hard to see a clear trend in a sea of noise. Too, even if you do see it, the cost of acting (type I error) on noise might be higher than the uncertain costs of not acting (type II error) on a trend.

See thread on type I and type II errors here:
viewtopic.php?f=20&t=6520

I actually have a lot of sympathy for those Greeks who are "still in it" (for failing to act, not for creating the mess).

[jennypenny]

A potential 30% haircut. Ouch.

I worry that the Greeks who are converting to bitcoin are just trading one mess for another. They don't know really know what to do with the bitcoins. http://www.reuters.com/article/2015/07/ ... B420150703

[Ego]

I actually have a lot of sympathy for those Greeks who are "still in it" (for failing to act, not for creating thean account mess).

Me too.

Those who were unharmed during the Mexican crisis were the people who figured out how to deposit their cash in US banks. They actually profited from the devaluation. To this day it is still a common practice to walk pesos across the border, change them at the exchange houses at San Ysidro then deposit them safe and secure in a California bank.

Greeks had it even easier. No need for a Green Card or visa to open an account. No currency exchange. They could fly to Germany and open an account, then transfer funds directly from their Greek account. They may have voted NO today with glee, knowing that a return to a devalued dracma would increase their wealth considerably.

That's why I find it useful to imagine myself in their position. If I still had cash in a Greek account I would be awfully pissed at myself right now. If I had a Greek pension I think I'd be terrified.

[stand@desk]

https://www.youtube.com/watch?v=2LcTVrBHK80 A great video highlighting the European Debt Crisis..it comes down to a difference of Cultures (Germany's Culture vs everyone else's) and the need for a European Fiscal Union in addition to their monetary union. Big Politics!!

[sky]

The election is a sham, whichever way the Greek people vote, the government is going to default, and blame it on the people's choice.

These organizations will lose: http://investmentwatchblog.com/barclays ... t-holders/

If those lenders have any kind of security on their loans, they will seize it.

The result of not getting new loans will be "austerity measures" such as cutting pensions, cutting govt employment, govt spending, etc.

Whether or not Greece leaves the European Union, or creates its own currency is not a big issue. An inflationary drachma might help a little bit, but probably not worth the effort of leaving the euro and creating a new currency. The issue is ongoing deficit spending.

The only real culture difference of importance is government willingness to deficit spend, which the Greek government was willing to, while the Germans limited deficit spending.

So in this situation, the average person should have taken advantage of the boom times, protected earnings by taking them out of Greek banks and banks who lent to the Greeks, wait for the collapse to pick up some cheap property and live off of the interest of their wealth.