Biderman: "Greece Will Take As Much Money as Given"

Dan Dorfman’s funeral is today. He was 81 years old. Danny had been writing his Dorfman and Dollars column for TrimTabs since January. I first met Danny in 1972 when I was a cub reporter at Barrons Financial Weekly and his Wall Street Journal column Heard on the Street was must reading by Wall Street pros. He will be missed.

I remain long term bearish on European stocks and as well as the big US banks. Why?

Greek public opinion is that they want to stay in the Euro but they want easier terms. At first blush it does not make sense to me why they would want to stay in the Euro? The Greek economy is a disaster and getting worse, so why would they not want to go in another direction? The only answer I can come up with is they like being able to borrow money to pay their bills and, even better, never having to pay the loans back. That makes sense.

If Germany is willing to keep lending to Greece even if most goes to repay older loans, Greece keeps getting some new cash. If Greece left the Euro, even that modest amount of fresh cash would disappear. How horrible! Greeks would actually have to go out and do stuff. They might have to work for a living and pay some taxes for government services.

That is a lot different from what they have been doing which has been depositing the new loan in their checking accounts and then spending it.

Germany keeps saying that they do not want to pay Europe’s bills unless Europe reworks its financial structure. That is what I hear. That makes sense to me. But why would the rest of Europe want to stop borrowing new money to pay old bills?

Anybody who ever has been a creditor understands that there are three types of borrowers. One type borrows money to cover a shortfall while creating something productive and then pays the money back out of the something productive created. The second type of borrower creates enough to pay interest on the loan, but will take longer to repay then thought. The third uses the money to pay bills and then comes back and demands more. After all he owes you so much already that unless you give him more he won’t be able to pay interest on the earlier loans. That third type of financing is known as a ponzi scheme.

That is what is going on in Greece right now. Greece will take as much new cash as they are given. When there is no more, Greece will have to leave the Euro and figure someone else out. The same with Spain and Italy.

If I were Germany I would be saying no new money for Europe unless I could make sure Europe will change. That is what I think Germany’s ultimate goal is. Because if Europe is not willing to change, then I think Germany will call Europes loans and force those who cannot pay to leave the Euro. The end result would be the same as if Germany left the Euro first.

Charles Biderman
President & CEO
TrimTabs Investment Research