Time to thank the vultures? Part 2, Any investigator anywhere in the world

May 9, 2016 | Argentina, Capital markets, Ecosystem, Global markets, Hedge funds, Law, Panama Papers, Sovereign bankruptcy | No comments 102 views

[Continued from yesterday’s Part 1.]

 

By: David A. Smith

 

As we glimpsed in yesterday’s Part 1, using the unwitting diptych of two Economist stories from the same April 16, 2016 issue, the first a sidelight on the Panama Papers, the second Economist (April 16, 2016; buff blue font), the best systems of governance and human organization set up systems where the single-minded pursuit of self-interest produces additionality as an ecosystemic byproduct.

 

inflatable_trump

Don’t use such yuge words, okay?

 

That’s the political-theorist’s way of saying that Elliott Management’s obsessive pursuit of hidden Argentinian sovereign assets led it to crack open the wall of secrecy surrounding one of the world’s most underappreciated criminality-facilitating law firms, Mossack Fonseca, whose client list includes both those who earn their money in high-tax countries and those who earn it in no-rules countries.

 

mossack_fonseca_offices

We’re everywhere a crook may want to be!

 

And puncturing the Mossack shell allows Elliott, and anyone who chooses to follow it, a global-secrecy endoscopy:

 

endoscopy_screen

We know you swallowed the documents – now, where are they?

 

But [March 2015 Las Vegas court ruling]’s full significance is only now becoming apparent: it means that, under an American law about assisting with foreign legal proceedings, any investigator anywhere in the world can subpoena Mossack, through the Nevada subsidiary, for information that could be relevant to cases in any country.  

 

Meanwhile, the same Elliott that crowbarred open Mossack Fonseca was also instrumental in Cristina Fernandez de Kirchner’s downfall; Mr. Macri would never have been elected without the holdouts’ diligence in nailing shut any aperture to the capital markets.

 

The appeals court upheld a decision taken on February 19th by Thomas Griesa, a lower-court judge, to lift an injunction blocking Argentina’s access to international credit markets. Mr Griesa agreed to remove the bar on two conditions:

 

[1] That Argentina repeal laws barring payments to the holdouts, whom the previous government had dismissed as “vultures”.

[2] That it promptly pay those of them who agreed to a deal.

 

The move infuriated the holdouts [Not all of them, just the 10% remaining holdouts from among the holdouts – Ed.], who had used the injunction as leverage in their negotiations. While they took their case to the appeals court, Argentina fulfilled its end of the bargain: last month its Congress voted to repeal the relevant laws.

 

That was as I predicted (not that this was a hard prediction to make).

 

ben_kingsley_cross_eyed

I saw it with both eyes

 

Argentina now plans to raise up to $15 billion through a bond issue, which is set to begin on April 18th.  

 

In fact, Argentina’s bond issue was an immense success; it was fully subscribed that day, raising $16.5 billion in an issue that was 4x oversubscribed.

 

It will use $10.5 billion-12.5 billion of that to pay the 90% of holdouts with whom it has reached an agreement. The remainder of the cash will be used to finance the budget deficit, which amounted to 5.8% of GDP last year.

 

The bonds will be issued under New York law

 

Here’s the third beneficiary of Elliott’s principled stance.  America’s capital markets are now seen globally as the best shield for creditors’ rights.

 

– in tenors of 5, 10 and 30 years; the government expects to pay interest of 7.5-8.5%.

 

In fact, the rates were even lower that the indicative guidance:

 

It sold $2.75 billion worth of 3-year notes at 6.25%, $4.5 billion of 5-year bills at 6.87%, $6.5 billion of 10-year bonds at 7.5% and $2.75 billion of 30-year bonds at 7.62%.

 

While the challenges confronting Argentina remain huge, at least the country is once again back in good standing with the global capital markets.  This should strengthen Mr. Macri’s hand with his legislature.

 

macri_tapping

Don’t make me point that finger at you

 

Argentina’s stock market responded positively to the news of the appeals-court decision, jumping by 4% to a five-week high. The same cannot be said of those bondholders who have yet to reach an agreement with Argentina. Some are retail investors, who bought bonds with their savings.  They now have little alternative but to accept Argentina’s formal offer, made on February 5th, of 72 cents on the dollar.

 

Without the hedge funds, those retail investors wouldn’t be in line for even that much. But the story’s not over yet:

 

(Mossack plans to appeal the Las Vegas ruling.)

 

mossack_fonseca_spiderweb

Redacted redacted with redacted for redacted purposes

 

I’ll bet it does.  I also bet that the firm starts hemorrhaging talent at an accelerating pace, as the non-corrupt lawyers and employees first tiptoe, then scuttle, then stampede for a job, any other job, than this one. 

 

Faced with the power of American subpoenas, Mossack’s head office will find it much harder to stonewall foreign requests for information.

 

Mossack will also start losing clients hand over fist:

 

Ignoring them could mean being found in contempt of court.

 

That would leave it open to penalties designed to compel it to comply, including asset seizures, in other countries where it operates.

 

The firm could, of course, slam the door shut by closing its American business.

 

It will do so as quickly as it can. 

 

But it is contractually obliged to provide services for thousands of companies there, and cannot disentangle itself from them overnight.

 

panama_papers

A lot of secrets published into the political arena

 

Vultures have their uses; they spot rotten beasts, and they pursue them.

 

vulture_circling

I spy with my little eye money moving on the sly

 

In this case, Elliott’s self-interested pursuit of recovery on Argentina’s sovereign obligations generated additionality benefits for all these beneficiaries:

 

1.     All other bondholders who didn’t settle.

2.     The US court system and New York’s capital markets.

3.     The cause of global transparency and those seeking to reduce global financial corruption.

4.     Mauricio Macri, the new reformist president of Argentina, and through him the Argentinian economy

 

It would be too much to expect any of them to write thank-you notes (or even thank-you tweets), but perhaps those critical of Elliott could now at least dial back their moral superiority.

 

Still, those looking to take advantage of the trail Elliott has blazed shouldn’t hang around.

 

When the pantry lights come on, the roaches scatter.

 

nationalities_of_roaches

Venality not to scale

Time to thank the vultures? Part 1, A crack in the wall of secrecy

May 6, 2016 | Argentina, Capital markets, Ecosystem, Global markets, Hedge funds, Law, Panama Papers, Sovereign bankruptcy | No comments 92 views

 By: David A. Smith

 

Are you glad the Panama Papers came to light? 

 

With numerous governments already announcing probes into the Panama papers and others preparing to do so, Mossack Fonseca, the law firm from which the hoard of documents about offshore companies was leaked, will be receiving lots of inquiries in the coming months.  

 

Then you have an unlikely hero to thank, one hiding in plain sight:

 

john_doe_crimes_public

One of the two unsung heroes of this story

 

I stumbled on it from the random juxtaposition of two stories, such as these in the Economist (April 16, 2016) and the Economist (April 16, 2016; buff blue font):

 

cristina_fernandez

I’d have got away with it if not for those meddlesome hedge funds

 

Argentina’s exit from default is finally in sight.  On April 13th, more than 14 years on from a catastrophic $82 billion sovereign default –

 

With perpetual amnesia a side effect of our attention-deficit-disorder-inducing media froth and its emphasis on conflict by soundbite, the muddier the better, it’s all too easy to forget that a decade and a half ago, Argentina stiffed all its creditors and dared them to fight back.  Some did, and those who did had to use asymmetric warfare, fighting not on the enemy pitch but in neutral territory:

 

– a federal appeals court in New York upheld a ruling –

 

As I’ve previously posted, global financial and capital markets represent in some ways a supra-sovereign network of private-sector capitalism, and as capital markets add value to economies, any nation that chooses to isolate itself entirely learns, as Napoleon did with his Continental System, that while markets fight not with guns, for all that they can nevertheless cripple.

 

continental_system_1806_1810

I’ll hold my economy’s breath until you turn blue

 

napoleon_closeup

Should’ve had Plan B ready

 

For all of Cristina’s fuming, the voters rejected her in favor of a reformer who believes in keeping his word:

 

The decision marks another important victory for new President Mauricio Macri, who reopened formal negotiations with the holdouts after becoming president in December.

 

Elections have consequences, and Mr. Macri’s changed both the negotiation dynamics and the judicial environment.  Settlement was thus swift:

 

– that allows the country to pay its ‘holdout’ creditors, holders of its defaulted debt who rejected restructurings in 2005 and 2010.  

 

‘Restructuring,’ readers must bear in mind, is the Economist’s shorthand euphemism for ‘unilateral cut in proposed payments,’ and it was based on Cristina’s belief, which took a decade and a half to disprove, that she could cram whatever she wanted onto external creditors.

 

Previous AHI posts on Argentina’s defaulted bonds

 

November 13, 2012: Epic CAC

November 27, 2012: CAC-handed

February 19, 2013: Dictatorship is uneconomic

July 11, 2014: International law’s Tinkerbell moment 2 parts

March 14, 2016: The Rime of the Argent Manager, 6 parts

 

While that worked for most of the herd, there emerged a group led by Elliott Management, who for their defense of principle earned plenty of shallow editorial opprobrium, to which (fortunately) they were immune.

 

dalyan_mud_bath

Your mud doesn’t stick to us

 

Having bought the defaulted paper at deep discounts, but nevertheless prices higher than Argentina was offering, Elliott set out on a hunt to close down the global capital markets against Argentina, and to invoke the capital markets and nail shut a financial blockade around the country:

 

In 2014 Elliott, a fund that owned debt on which Argentina had defaulted, sued in Nevada to compel Mossack’s local affiliate to provide information on shell companies, in the hope of discovering Argentine assets to seize.

 

Organizations headed by liars may in fact be staffed by non-liars, the unwitting truth-tellers providing so much useful camouflage.

 

madoff_trading_floor

It isn’t important that they know.

It’s only important that I know

 

On the other sidewalk of truth’s street, the best liars compartmentalize their lies: one set said here, another said there, and never the twain shall meet. 

 

The affiliate, MF Corporate Services, claimed – implausibly – that it was independent of Mossack.

 

Hence the enormous significance of prying open the US affiliate, as reported in CNN (April; 6, 2016; iris font)

 

Mossack Fonseca’s Nevada subsidiary, MF Corporate Services, is located in an office park near Las Vegas airport.

 

mf_corporate_services

Cash your winnings here, sir?

 

And now it all makes sense.

 

Las Vegas Airport is located incredibly close to the Strip.

 

southwest_vegas_departing

 

At the casinos, they are happy to exchanges your mountains of cash for chips, and later re-exchange those chips for a new stack of cash – larger or smaller depending on your luck.  It’s the perfect place not only to launder global money and then incorporate it into a shell company domiciled somewhere with strong privacy laws.

 

Many of the companies it helped create follow a similar pattern — they all list officers based in Panama, British Virgin Islands or Seychelles, places the European Commission has labeled as tax havens.

 

Forget the ‘tax haven’ aspect, which I suspect is a small fraction of the business – it’s the laundering of drug, terrorist, or dictator money that is the big business line for the micro-haven countries. 

 

whale_private_jet

Fly in with dirty money, gamble for a few days, fly out with clean money

 

The registration documents for some companies tied to MF Corporate Services list other corporations as company officers, and do not mention any individuals.

 

Once encased in a corporate shell located in a hard-to-crack country, the money can then be safely deposited in a big financial institution – New York, London, Frankfurt – for ready access when your need it most.

 

According to court documents, MF Corporate Services offered ‘kits’ that allowed clients to incorporate in less than 24 hours.  

 

Remember, Elliott’s pursuit of Mossack Fonseca long predates John Doe’s data dump of the Panama Papers – and it’s entirely possible that John Doe is in fact a Mossack Fonseca employee who became horrified at what he or she became aware of as the firm fought to defend its rights of secrecy:

 

In a series of legal skirmishes, Elliott and its lawyers from Dechert LLP established numerous links between the two: for instance, that the employment contract of MF’s sole employee was signed by Mossack partners.

 

That’s embarrassing.  So is this:

 

The Nevada subsidiary’s sole employee has testified that the documents were sent to Mossack Fonseca in Panama to be finalized, the documents show.

 

MF Corporate Services, in other words, was a one-person drop box for the collection of money that flew in, washed off its fingerprints, and then flew out again.

 

Emails among the Panama papers are said to show that the firm tried to hide evidence of its control over MF Nevada, and wanted its local representative to lie about the relationship.

 

(Mossack has denied this.)  

 

calvin_denial

My reality is the only one that matters

 

One manager reportedly worried that “it could easily become clear that we are hiding something.”

 

A judge in Las Vegas ruled in March 2015 that Mossack and MF Nevada were one and the same.

 

That put a crack in the wall of secrecy around American shell companies.

 

crack_in_shell

What’s inside the shell?

 

And now the fun really begins.

fun_starts_here

Tune in tomorrow!

 

[Continued tomorrow in Part 2.]

Dissecting the cadaster: Part 7, A special reservation for the vipers

May 5, 2016 | cadaster, Eminent domain, Escheat, Eurozone, Eviction, Greece, Homeownership, Housing, Infrastructure, Land, Law, Ownership, Regulation, Speculation, Title, Urbanization, Zoning | No comments 110 views

 [Continued from yesterday’s Part 6 and the preceding Part 1, Part 2, Part 3, Part 4, and Part 5.]

 

By: David A. Smith

 

In yesterday’s penultimate installment of this post, using articles from both Reuters (18 October 2015) and the New York Times (26 May 2013; sepia font),, we’ve seen that Greece cannot possibly pay its Eurozone debts unless its formal economy can revive – and that’s increasingly unlikely, as the austerity requirements suffocate the processes of formalization and thus drive ever more of the economy underground and into informality.

 

informality_in_greece_housing

Plenty of reasons from Serafeim Polyzos and Dionysis MinetosUniversity of Thessaly, 2009

 

At some point, informality becomes the norm, and when that happens, what is the point of a government?

 

Michael Vlahakis (of the Residents Outside Town Planning club), who says he has built two illegal houses, one for himself and his wife, the other for his daughter, was invited to Athens four years ago to address lawmakers and ministers in parliament on the need to adapt town planning to reality.

 

Now has arisen in Greece a further irony of democracy: those invested in informality probably outnumber those invested in formality, and they will tend to vote their short-term self-interest. 

 

The fact that many local authorities have no master plan for land usage, and that residents or campaigners can use slow-motion litigation to wreck investment projects, compounds the problem, Papaconstantinou said.

 

Ordinarily short-term obstructionism can be countered by appealing to voters’ long-term self-interest – a healthy economy, national sovereignty and freedom – but to enact austerity simply to sell off Greek assets just to appease French and German creditors?  It sounds like a techno-imperial re-enactment of Greece’s rickety independence two centuries earlier, when the western powers installed a Dane as King Georgios I. 

 

george_i_greece_young

Someone had to be king, and I was picked

 

Now there is no political courage, and precious little reason to find it.

 

“They haven’t done it [rezoned metropolitan Heraklion] since the mid-1980s despite the fact that Heraklion city has more than tripled in terms of houses and land since then,” said Michael Vlahakis, describing an upside-down urban development process.

 

 

6. Obstruction has become a purpose in its own right

 

In fact, obstruction has become its own purpose.

 

Cadaster reform was started in 1995 –

 

Four years before the Euro currency was launched, with Greece as a founding Euro country.

 

– with EU funds that had to be returned to Brussels in 2003 because of misuse.

 

Way back then, nearly twenty years ago, those of us who doubted the Euro criticized it as an economic yoke intended as a political aspiration, faulting it not for its goals but for its decision sequence.  Political union has to precede economic union, because economic union without political union invites every sort of moral hazard, free rider, and principal-agent risk in the textbook.  But in the pre-millennial Euro-phoria that gripped the stronger nations’ capitals, all the weaker economies were invited in, on the premise that being in the club would reform their previously slothful ways. 

 

This state of affairs is particularly galling because Greece has thrown hundreds of millions of dollars at the problem over the past two decades, but has little to show for it.

 

Instead, we cynics were proven right: once in the club, not only did Greece and Italy continue in their spendthrift mezzogiorno ways, so too did Spain and France, because after all, what’s a budget deficit above 3% of GDP among friends?

 

van_gogh_mezzogiorno

What’s a little budget deficit among sleeping friends?

 

George Papaconstantinou, who tried to speed up the exercise as environment minister in 2011.  cited the example of a consortium that wanted to invest several hundred million euros to build an eco-friendly luxury hotel on the Aegean island of Milos.

 

Tourism-based jobs sound like a good idea, don’t they?

 

After a five-year wait, the project was denied planning permission because it was deemed to threaten the natural habitat of a rare species of venomous snake present on only four Greek islands.

 

Is it my imagination, or is the concept of a protected venomous viper particularly Greek?

 

greek_meadow_viper

Someone has to protect the vipers

 

The story gets even better:

 

“They offered to build a special reservation for the vipers, but I couldn’t help. Even if I had approved the plan, the Council of State (Greece’s supreme administrative court) would have unraveled it,” Papaconstantinou said.

 

greece_council_of_state

We try to see things from our myopic legal perspective

 

At some point you’ve fallen so far behind you can never catch up.

 

fallen_medical

We’re trying to comply with the EU directives

 

The extent of disputed land is enormous, experts say.

 

“If you calculated the total deeds that are registered,” said Dimitris Kaloudiotis, an engineer who took over as president of the national land registry authority last month, “the country would be twice as big as it is.”

 

kaloudiotis_dimitris

Kaloudiots can find twice as many claims as hectares

 

Perhaps Greece has already missed its last best hope:

 

“There is also a lot of resistance from other vested interests – surveyors, local notaries, property registrars – who could be out of a job once the project is finished,” said Papaconstantinou, “They put lots of legal and bureaucratic obstacles in the way.” 

 

A rational government would formalize and compensate, and would do so on the tide of a national mandate to revive the economy.

 

AHI posts on Greece’s financial troubles and recapitalization efforts

 

June 18, 2012: It will happen this way, 2 parts, how the Eurozone may break apart

September 11, 2012: Auf wiedersehen, sovereignty

December 10, 2012: Societal bankruptcy, 2 parts, breakdown of trust in government

January 7, 2013: Financially hollowed out, loss of economic muscle

February 5, 2013: Prospero’s Europe, 2 parts, EU ‘austerity’ impoverishment of Greece

December 12, 2013: Underground to overthrow 2 parts, driving economy informal

March 5, 2015: Creditor of deadbeats = Deadbeat debto, 2 parts, uncollectability

 

 

 

7. The cadaster will never be fixed until the EU owns the problem by canceling debt

 

The Greeks have no equity in their country, so why should they labor mightily and incur political wrath to privatize assets, the proceeds of which will be given to their inflexible and arrogant Eurozone creditors? 

 

[Dimitris Rokos, director of planning and investment at the National Cadaster and Mapping Agency ] said the deadline could still be achieved if the agency were given greater financial and management autonomy to run more efficiently.

 

“It is still realistic if the government takes some basic strategic decisions by the end of the year,” he said.

 

Naturally, the only decision made was the decision to defer making any decisions: informality and irresolution go hand in hand.

 

small_time_crooks

You’re informal, I’m just unresolved

 

Mr. Hamodrakas is far from resolving the dispute with his neighbors. The courts in Greece are flooded with such cases. “These things take years,” he said, “maybe a decade to settle.”

 

Informality is economic guerrilla warfare against an invader, and Greece is the Eurozone’s equivalent of Napoleon’s campaigns in Spain: a foolish overreach consuming resources with no exit strategy. 

 

napoleon_in_spain

For ‘Spanish’, read ‘Greeks’; for ‘Napoleon’ read ‘EU’; for ‘Russia,’ read ‘Putin’?

 

The [privatization] agency HRADF has lost key staff, such as the IT director and top legal experts,  to the private sector due to steep pay cuts under austerity measures imposed by Greece’s lenders.

 

Naturally Ms. Merkel and friends didn’t consider the talent updraft – or in this case, the talent exodus – to follow from imposing austerity on those who are administering the austerity.

 

Greece also endured long months without a budget in the last five years.

 

Nor did it occur to her that a country with no love for Europe may be perfectly unwilling to stop immigrants from tromping through its informal rural areas on their way to Germany or France.

 

immigrants_into_macedonia

No jobs and no money in Greece, so keep walking into Macedonia

 

Greece remains shackled by being a public utility company under the authority of the environment ministry, even though it is partly self-financing.  

 

The chairmanship has changed four times in as many years, mirroring successive governments, including twice this year when a hard left minister was appointed, then sacked.

 

A strategy that is incapable of execution is not a strategy.

 

schematic_framework_informal_housing

Good luck untangling that: More good work by Polyzos and Minetos

 

The Eurozone leaders have ruined the Greek recapitalization, and in doing so, they have been ruining Greece. 

 

Greece went bankrupt in 2010 and we have had an “extend and pretend” program since then.

– Yanis Varoufakis, 31 March 2016

 

varoufakis_in_parliament

Yes, this shirt is a political statement – what of it?

Dissecting the cadaster: Part 6, No one dares to say ‘simple’

May 4, 2016 | cadaster, Eminent domain, Escheat, Eurozone, Eviction, Greece, Homeownership, Housing, Infrastructure, Land, Law, Ownership, Regulation, Speculation, Title, Urbanization, Zoning | No comments 100 views

 [Continued from yesterday’s Part 5 and the preceding Part 1, Part 2, Part 3 and Part 4.]

 

By: David A. Smith

 

With five parts done in this punctilious examination of Greece’s anything-but-punctilious land registry and entitlement system, based on articles from both Reuters (18 October 2015) and the New York Times (26 May 2013; sepia font), we’ve seen that not only is informal and ambiguity of property ownership tolerated within Greece economic society, it’s also the lifeblood of many a service professional, and thus any attempt to impose formality and efficiency onto Greece will be resisted by what a HUD facilitator called ‘the clandestine arsonists hidden in every Department of Fire Prevention Regulation.’  In fact, and even more ironic for my story, in Greece the secret arsonist’s society isn’t metaphorical, it’s literal:

 

Researchers have found that enormous stretches of protected forest land have been developed in recent years after wildfires cleared the land.

 

greek_fire_july_2015

Natural causes?

 

A forest protected legally may be deforested pyrotechnically, and where is its forest legal status now?  Greece’s biological ecosystem is fragile; Crete was denuded twice, in the sixth century AD and then in the 1500’s when the Venetians cut down its trees (to build the ships they used to hold back the Ottomans at Lepanto), and if those are any guide, ‘natural’ forest recovery is a matter of centuries, by which time the cleared areas will have been urbanized.

 

venetian_galley

Thank the Cretans for the wood

 

Arson, in short, is an economically rational response to Greece’s inadequate land registration system.  

 

Spyros Skouras, an economist at the Athens University of Economics and Business, found that the fires increased significantly during election years.

 

An election year is the ideal time to commit clandestine political arson, when the powers that be are distracted, and if they happen to notice are likely unwilling to act.

 

greek_candidates

I’ve got other things on my mind right now

 

Once you change the facts on the ground, now you’ve got the sclerotic inertia working for you.

 

Roughly 60% of the country is officially designated as forest, protected by the Greek constitution from economic exploitation.  The perimeters of forests are largely delineated by aerial photographs taken shortly after World War Two.

 

What was forest seventy years ago should not necessarily be forest today.

 

Areas that have since been deforested, including several of the Cyclades islands, remain registered as forest even though they may not have a single tree.

 

burned_forest_pelopponese

Legally, this is forest

 

Compounding the problem, resolving business disputes through the courts takes nearly three times as long in Greece as the average in members of the Organization for Economic Cooperation and Development, a rich countries’ club.

 

It’s quite clear that Greece’s judicial system has no shortage of business to keep itself employed, and hence in a very comfortable situation, where everyone who comes before the court, plaintiff or defendant, is a supplicant.

 

Politicians, real estate developers and construction firms had all sabotaged the cadaster project to protect their interests, said Michael Vlahakis, president of the Residents Outside Town Planning club.

 

A system that is formal tends toward uniform implementation.  That’s great for business (certainty and speed), great for consumers (lower per-transaction costs), and great for investors (reduced unhedgeable risk increases property value).  But it’s terrible for intermediaries (their workload is sliced, their fees more than sliced), awful for patronage (the doing of favors makes no difference), and deflating for politicians (whose clout shrinks).

 

shrinking_man

Look my clout is as big as it’s ever been!

 

Worst of all, it’s debilitating and crippling for the economy, because investment decisions cannot be made and hence the built environment does not increase in size, utility, and value.

 

AHI posts on Greece’s financial troubles and recapitalization efforts

 

June 18, 2012: It will happen this way, 2 parts, how the Eurozone may break apart

September 11, 2012: Auf wiedersehen, sovereignty

December 10, 2012: Societal bankruptcy, 2 parts, breakdown of trust in government

January 7, 2013: Financially hollowed out, loss of economic muscle

February 5, 2013: Prospero’s Europe, 2 parts, EU ‘austerity’ impoverishment of Greece

December 12, 2013: Underground to overthrow 2 parts, driving economy informal

March 5, 2015: Creditor of deadbeats = Deadbeat debtor, 2 parts, uncollectability

 

Now you understand the mountain that Greece’s privatization chief Lila Tsitsogiannopoulou, executive director of the Hellenic Republic Asset Development Fund [HRADF], must climb, one parcel at a time.

 

The state cannot sell its prime real estate while disputes fester in the courts about ownership, boundaries and zoning.

 

ellenikon_economics

Can’t realize it until you sort out its ownership

 

 

5. Greece will never resolve its land cadaster without fair eminent domain

 

While neither Reuters nor the New York Times mentioned it (perhaps because neither of their sources mentioned it), the invisible elephant in the room is the absence of an effective eminent domain law.

 

Many experts cite the lack of a proper land registry as one of the biggest impediments to progress. It:

 

·         Makes it virtually impossible to collect property taxes.

·         Scares off foreign investors.

·         Makes it hard for the state to privatize its assets (as it has promised to do in exchange for bailout money).

 

[Sentence order rearranged to reflect true priority. – Ed.]

 

Earlier in this post I mentioned the rural-urban divide; as Greece urbanizes (along with the rest of the world), and Athens, Thessaloniki and Heraklion loom ever larger as drivers of the Greek economy, irresolution of urban land will become progressively more crippling – and if I had to concentrate on where to rationalize the cadaster, I would start with those three cities first.

 

Greece has resorted to tagging tax dues on to electricity bills as a way to flush out owners.

 

Frankly, that’s a good strategy, and it makes urban-policy sense – if you’re getting electricity, you have technological property and you’re benefiting from its ownership.  But as we saw two and a half years ago, that drives more of the economy underground.  It also has another consequence:

 

That means that empty property and farmland has yet to be taxed.

 

Personally, I’d tackle the rural property last; it’ll be the political redoubts and it won’t move the needle much on the economics of reviving Greece. 

 

European officials who have been involved in trying to help speed up the job say it is impossible to tell when it will be finished and have urged a radical simplification.

 

Naturally I wouldn’t publish that strategy, lest someone accuse me of cynical political calculation.

 

“It is so complex that no one dares to say ‘let’s make it simple’,” said Rik Wouters, a veteran Dutch cadaster officia who led the European team that tried to help Greece between 2011 and late 2014, when an EU Task Force was withdrawn.

 

r

Wouters dares to say it should be simple

 

I suspect that the EU Task Force, realizing its task was impossible, sought to leave Greece long enough before the next Greek default so as not to be blamed for it.

 

Wouters, managing director of the European Land Information Service, said in a telephone interview he had recommended the project be streamlined using tax records and old land registers to identify property holders and produce an index map locating land parcels rather than the more cumbersome delineation of boundaries to the centimeter.

 

By itself that would be a start, but in the simplification some people would gain land, some would lose it; and those who lost it would want compensation.  Hence HRADF, and by extension Greece, needs eminent domain – proper eminent domain, with due process and just compensation.

 

spiderman_great_power

 

Whatever the risks of eminent domain being overused – and they are certainly real enough – something must be created to cut through the delays in land transfer that prevent or hobble land development, and hence economic development. 

 

Much of suburban Athens is still officially forest, since the city expanded massively in the twentieth century with no equivalent changes in land zoning.

 

As I’ve multiply quoted Michael Mutter, you can become urban without moving, and when it happens, the zoning must be updated, otherwise you get the mismatch between legal abstract and physical reality that is among my definitions of a slum. 

 

Attempts to change the status quo, whether for economic development or practical purposes [Is economic development no practical? – Ed.] such as creating a cemetery to bury the dead, encounter often fierce resistance that can lead to years of litigation.

 

The wider this divergence, the greater the informality – and the greater the number and diversity of stakeholder groups fiercely protecting what they see as ‘theirs’.

 

Rather than look to helping the country out of its financial mire, the Orthodox Church has stoutly defended its many tax relief privileges and the lack of transparency of its records that help keep from view the extent of its tax-free wealth. Its spiritual work justifies its privileges, the Church claims.

 

It must be nice to have God on your side; it can justify so many things that to the unbeliever look supremely selfish.

 

Patriarch, can you teach me how to be righteous while building palaces?

 

[Continued tomorrow in Part 7.]

Dissecting the cadaster: Part 5, Make their livings through constant haggling

May 3, 2016 | cadaster, Eminent domain, Escheat, Eurozone, Eviction, Greece, Homeownership, Housing, Infrastructure, Land, Law, Ownership, Regulation, Speculation, Title, Urbanization, Zoning | No comments 127 views

[Continued from yesterday’s Part 4 and the preceding Part 1, Part 2, and Part 3.]

 

By: David A. Smith

 

Four parts into this meticulous exploration of the challenges of establishing land ownership in Greece, using articles from both Reuters (18 October 2015) and the New York Times (26 May 2013; sepia font), we know that the problem of land irresolution is deep-seated, pervasive in both rural and urban environments, and so woven into the Greek culture and economy that its untangling would be worthy of Heraklion’s namesake, especially because many Greeks, including many Greek civil servants, like it dirty.

 

herakles_stables

We’ve had a thousand cattle piling up the crap in here

 

Enter and unlikely Herakles:

 

“Clearly, if you’re an illegal owner in Greece, you don’t want this cadaster project ever to be finished,” said George Papaconstantinou

 

george_papaconstantinou_impatient

That’s a lot of bull

 

As Mr. Papaconstantinou well knows, three decades is plenty of time for everyone involved to have forgotten the original goals, for those who cut the deal to be long gone from their domestic politics, for new priorities (refugee resettlement, anyone?) to consume politicians’ attention, and everyone to become so disgusted that a different plan is developed.

 

Over the years, I’ve twice before cited Mr. Constantinou, and each time presented him as unequivocally one of the good guys, first for sounding the alarm on Greece in 2009 and seeking an orderly restructuring (partial writeoff or rescheduling) and later in 2015 for his efforts to clean up (streamline, improve, rationalize) tax collection in Greece.

 

  wsj_greek_tax_collections

Is this any way to run a country?

 

– tried to speed up the exercise as environment minister in 2011 but ran into a wall of opposition.

 

As Mr. Constantinou found, at the cost of a year in judicial purgatory, if delaying fail, the nomenklatura (low-level informal and corrupt public and private actors) will sabotage the reformers with means most foul, such as trumped-up charge of corruption (Guardian, March 24, 2015):

 

A tribunal exonerated Greece’s former finance minister George Papaconstantinou over his handling of the infamous Lagarde List of wealthy Greeks with secret bank accounts abroad.

 

[The recent revelation of the Panama Papers has spotlighted the extent to which prominent people, some of them in public office, have gone to conceal their wealth. – Ed.]

 

panama_papers_leaked

Beyond scope for AHI, but sit back and get a bucket of popcorn

 

“This is as close to an acquittal as would be possible in the circumstances,” a court official told the Guardian.

 

Papaconstantinou had been handed a list of 2,062 Greeks with holdings in the Geneva branch of HSBC by Christine Lagarde, at that time his French counterpart, for the express purpose of pursuing tax evaders.

 

Clearly in Europe they have novel conceptions of bank privacy, if even the Swissies’ records can be penetrated and exposed to elite view. 

 

papaconstantinou_lagarde

Act like we’re not together, George, but look at all the names on that list, okay?

 

The inventory had been stolen by a bank clerk at HSBC before being seized by French police.

 

It’s getting harder and harder to be a global crook these days. 

 

Three of Papaconstantinou’s relatives were discovered to be among the names, but at some point mysteriously disappeared from the list. 

 

From the outset, the urbane, British-trained economist had vehemently protested his innocence.

 

Many in Greece had reason to resent him, as Mr. Papaconstaninou was seeking to clear up the stables.

 

As finance minister in late 2009, when Greece’s debt crisis erupted, Papaconstantinou was the architect of the harsh economic adjustment program that Athens was forced to enact in return for aid from the EU and International Monetary Fund.  Unpopular measures, including spending cuts and tax rises, were enforced under his watch. 

 

As I previously posted (Creditor of deadbeats, March 5, 2015), the fiscal leakage from non-collection of Greek taxes is itself scandalous: barely 50% of all taxes due are in fact received.

 

Papacontantinou said he had been deliberately framed when it emerged that three of his relatives had been removed from the list after he ordered the data to be transferred from a CD containing the original information to a USB memory stick. “Why would I just remove their names, which would look so suspicious, and no one else?” he was quoted as saying in testimony delivered during the trial.

 

papaconstantinou_on_trial

Never let them see you sweat: Papaconstantinou in the dock

 

Insofar as this was a political squirrel!, it worked – though working didn’t help Greece any.

 

The former minister smiled as the presiding judge Nikos Passos said punishment would take the form of a one-year suspended sentence.

 

A 13-judge tribunal said Papaconstantinou’s “prior life” as an upright citizen had been a mitigating factor. The 53-year-old, once the embodiment of hope and reform in Greece, had faced a life sentence if found culpable of breach of duty – the accusation made for failing to act on the list.

 

That one of Greece’s best hopes for reform could be forced into a distracting defense illustrates the next challenge with reforming Greek institutions: many people don’t want reform.

 

 

4. Opponents of efficiency: the league of ‘clandestine arsonists’

 

Some experts wonder whether there is really the political will to sort things out.

 

As I’ve previously written, ‘political will’ is an illusion that presupposes a nation has a coherent brain; in fact, there is political capital, and political calculation, and very occasionally political courage.  Right now Greece cannot muster it – for all his demagoguery, Alexis Tsipras failed at supporting Yanis Varoufakis, and the moment to restructure Greece’s sovereign debt was lost, in favor of a multi-year extend-and-pretend.  Now Mr. Tsipras presides but he does not govern, because having lost his moment of mandate, he has no political capital to tackle the fifth column inside his country: those who profit from inefficiency.

 

An army of lawyers, engineers and architects make their livings through the constant haggling over landownership and what kind of development is possible where.

 

A little over twenty years ago, I spent a week in Washington (actually, a conference hotel in Arlingtun, VA) as a participant in a five-day HUD-convened ‘insiders and friends only’ workshop/ strategic planning session on reinventing FHA.  Halfway through the first day, the facilitator said to us, “If you’re working for the Department of Fire Regulation, assume that 49% of your employees are secret arsonists,” because by setting fires, or fanning them, they assure themselves jobs.

 

tsipras_needs_more_moneyi

President Tsipras hearing that Greece’s top court ordered €1.5 billion in annual pension cuts restored

 

It was right when he said it, and two decades later it is even more right, and applicable to real estate and housing.  Land disputes are one of the absolute best environments for clandestine arsonists to flourish.  In 2005, when working on a USAID assignment in Cairo, I was told that roughly 40% of all litigation in Egypt concerned land and property, specifically ambiguity over title and ownership. 

 

AHI posts on Greece’s financial troubles and recapitalization efforts

 

June 18, 2012: It will happen this way, 2 parts, how the Eurozone may break apart

September 11, 2012: Auf wiedersehen, sovereignty

December 10, 2012: Societal bankruptcy, 2 parts, breakdown of trust in government

January 7, 2013: Financially hollowed out, loss of economic muscle

February 5, 2013: Prospero’s Europe, 2 parts, EU ‘austerity’ impoverishment of Greece

December 12, 2013: Underground to overthrow 2 parts, driving economy informal

March 5, 2015: Creditor of deadbeats = Deadbeat debtor, 2 parts, uncollectability

 

Continued tomorrow in Part 6.]