Have you ever meet one of those old fashioned 1960s left wing “save the world” radicals who seem to get off on protesting? They love to raise their voices in righteous outrage at the latest atrocity. They love the lime light – they love the sound of their own voices blended with a thousand other voices, all yelling in unison over some noble cause. The 1960s protest movement was associated with being young and hip and anti-war. But that’s all changed: the new generation of protesters is all about fiscal fairness and economic conservatism. And their leaders inhabit high places. Last weekend’s G-20 meeting illustrates the new era of protesting. This time it’s the blue suit boys protesting against the left-wing radicals. Canadian conservative finance minister Jim Flaherty protested the precarious predicament in Europe brought about by left wing Greeks building their economy on a mountain of debt. And that Olympian mountain of debt is threatening the world’s banking system. Greece’s problems are our problems.
What’s their problem? It’s simple. The Greek people collectively owe so much money the only way they can make their interest payments is by borrowing even more! It’s like kiting, on a grand scale. Kiting is a pre-bankruptcy phenomenon where an individual is so far in debt that he borrows on one credit card to make a payment on the other one. He keeps going back and forth between the credit cards alternatively borrowing from one in to make a payment on the other, until he max’s them all out and can no longer make any payments. There are only two things the kiter can do: dramatically decrease his spending and make payments from his earned income – or go broke. That’s the situation Greece is in right now. And, it appears that the old fashioned left wing style of protest is still alive and well in Greece. Unions are out if full force, shouting angrily that they don’t want to dramatically decrease Greece’s spending. Their problem is they don’t want to take the decrease in standard of living that is required to keep their economy going. And our problem is, when the Greeks default on their debt payments, the world’s banking system takes the hit.
That’s why Jim Flaherty and the G-20 blue suits are protesting. We are in trouble because of Greek monetary mis-management. But it’s not just the Greek borrowers who caused this problem. Who loaned them the money? What lender would advance money to someone they knew couldn’t pay it back? What kind of banker lends money without doing a credit check on the borrower? From one angle, the European bankers did it to themselves! If they had been more prudent in their lending practice, they wouldn’t be in the jam they’re in. Perhaps borrowing from the Greeks would have earned the banks an extra ¼ of 1% interest. That might have seemed like easy money for the Euro-banks if they didn’t check out the credit risk. Jim Flaherty and the blue suit protesters were waving their placards at loose lending as well as blatant over borrowing. The whole thing stinks.
And the stench seems to have crossed the Atlantic. A good old fashioned anti-establishment “Occupy” protest is spreading all over North America: the Occupy Wall Street movement. Young activists are raising their voices in unison, calling for an end to corporate greed. They could easily add sovereign debt greed to their list if indignities. But, it all makes sense, doesn’t it? Irresponsible mortgage lending almost broke the banks back in 2008 and 2009. Those same banks that had loaned American homeowners more money than they could afford to repay, were the ones that almost went under in the American sub prime mortgage fiasco. And now, in late 2011, the Euro-banks are threatened by irresponsible sovereign debt lending. And the Occupy protesters seem to have picked up on that vibe. Somehow, they seem to have recognized that same thing that Jim Flaherty and the blue suit boys have recognized. The big banks went way too far.
Now what are we supposed to do? It’s clear that the banking binge of the early years of the twenty first century has led to the current monetary morning after. It’s equally clear that there’s not a thing an ordinary person can do about it. We can’t save the world. But we can save ourselves.
In my investing book, Beyond the Bull, I outline a five step program for investment survival. Step 2 is having a plan and step 3 is acting on that plan. Protesters all over the world are warning us that there is danger blowing in the financial winds. And so far, the blue suit boys have muddled through it all and kept the boat floating. Each of us has to do the same thing in our personal financial world. This is the time to adjust your investments – the time to take less risk than you have ever taken. Once your financial house is in order, once you save your own world, you can pick up your placard and joint the blue suit protests.