Weekly Walk of Shame: Greek Tragedy

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This Motley Fool series examines things that just aren't right in the world of finance and investing. Here's what's got us riled up this week. If something's bugging you, too -- and we suspect it is -- go ahead and unload in the comments section below.

Today's subject: When a government is beset by financial crisis, common sense dictates that it should pare back spending. Alas, to quote Voltaire, common sense is not so common. Thousands of Greeks are now protesting, even rioting, over the austerity measures their government has imposed to battle its disastrous debt. The Greeks' indignation seems shameful, if not downright bizarre.

Unfortunately, Greece's problems are only the tip of the iceberg for our global economic worries. Too many countries continue to carry unsustainable levels of debt.

Why you should be indignant: I'm not surprised that Germany and several other EU countries have balked at helping out their misbegotten Mediterranean neighbor. Greece not only spent more than it had, but also fudged its numbers to hide that fiscally irresponsible behavior. (As if it needed more bad publicity at the moment, Goldman Sachs (NYSE: GS  ) allegedly helped Greece conceal its debts.)

Last year, Greece's budget deficit reached 12.7% of its GDP, while its national debt as a percentage of GDP hit roughly 125%. My Foolish colleague Jordan DiPietro recently pointed out that Greece blatantly disobeyed EU deficit and debt rules to get into this mess, which has now become a huge risk to the Eurozone.

The IMF has agreed to help (with austerity strings attached), but its contribution seems like a short-term Band-Aid at best; Greece's costs will still outpace the fund's infusion. The easiest ways to right Greece's finances include tough methods that are unpopular with its citizens: VAT taxes, pension cuts, higher retirement ages, and firing unproductive government workers. And that means the possibility of continued, and perhaps escalating, social unrest.

Of course, Greece's woes have also fueled fears that its debt will spread throughout the Eurozone, triggering similar fiscal difficulties for Spain, Portugal, and Italy. Across the board, sovereign debt could become our next big crisis to worry about.

What now: I wouldn't touch Greek stocks like DryShips (Nasdaq: DRYS  ) or National Bank of Greece (NYSE: NBG  ) with a 10-foot pole right now. And while I'm wary of investing in Greek companies, I believe Fools should also exercise greater caution when investing here in the U.S.

Greece's current mess is a near-perfect parable about the fate of any culture that relies on debt and fiscal recklessness to achieve the illusion of prosperity -- only to clamor for bailouts and safety nets when that mirage eventually vanishes. How is the massive U.S. debt any less serious a problem than Greece's?

The U.S. Government Accountability Office said earlier this year that in 2009, the U.S. budget deficit reached 9.9% of GDP, the largest such proportion since 1945. The total U.S. public debt currently represents 62% of GDP, and it's estimated to hit 100% of GDP by the end of 2011.Without policy changes, such debt growth is unsustainable.

In addition, the GAO revealed models of a not-so-distant future where, without major (and politically difficult) policy shifts, most federal revenue will go toward entitlement programs like Medicare, Medicaid, and Social Security, with the rest servicing interest on the burgeoning public debt. In other words, over the next several decades, there will be little money left over for defense, education, welfare, highway and mass transit investment, and many other priorities. On a purely realistic economic basis, something's got to give.

As concerned as I am, I think it would be a mistake to give up on stocks. I still consider strong, cash-rich companies with wide competitive moats the safest investments. I'd choose cash-rich companies like Apple (Nasdaq: AAPL  ) or Google (Nasdaq: GOOG  ) , both of which enjoy solid consumer loyalty and a strong history of forward-looking innovation. I'd avoid struggling, overly indebted companies like Blockbuster (NYSE: BBI  ) or Borders (NYSE: BGP  ) , which exemplify the long-term dangers of irresponsible debts.  

However much much happy talk we hear about U.S. economic recovery and stock market rallies, investors shouldn't underestimate the risks inherent in our gigantic national debt. Like Greece, our government's been spending money it doesn't have to make up for shortfalls from organic economic growth, all to create an illusion of "business as usual." Sorry, Keynesians, but Greece and the Eurozone clearly show that long-term deficit spending is a lousy game plan for governments.

Shame on Greece, and on anyone who riots against reality. If we can't realize the importance of fiscal responsibility within our own borders, the current Greek tragedy may not be as far away as it seems.

Google is a Motley Fool Rule Breakers choice. Apple is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.

Read/Post Comments (13) | Recommend This Article (29)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 05, 2010, at 2:28 PM, greek123 wrote:

    I wonder why I keep reading you people after all the surface reporting and posting on this place. If you want a contributor I would like to volunteer, it wouldn't even take me 5 mins to write something like this

  • Report this Comment On May 05, 2010, at 3:00 PM, ryanjmorrell wrote:

    I agree with you greek123, Whenever they write about dryships and relating it to Greece they never understand that there rates are fixed and dont come from the Greek market. They never have and never will which to me makes me believe they have no clue what they are writing about and that they are just a bunch of monkeys trying to tie two things together that dont match.

  • Report this Comment On May 05, 2010, at 4:40 PM, makemoneywbbi wrote:

    Another unrelated article bashing Blockbuster, WTF. Fool is a piece of sharted website.

  • Report this Comment On May 05, 2010, at 8:41 PM, wetlands001 wrote:

    And what is the relationship between NBG and the lousy practices of previous Greek governments? How is BBI almost bankrupt company related to NBG's solid earnings performance?

    Greeks people are still in denial and the riots are a clear sign that its government has a lot of education to explain in the bubble they were living and their reality. They only know that their salaries are going to be cut and their way of living is going to be tougher than what it was in previous administrations. Probably a big portion of these greeks that are rioting today will thank this leader in several years.

    I think good Fools always due their DD and will invest based on their best judgement and not based on a mere opinion based on no fundamentals, but just that. A mere opinion.

  • Report this Comment On May 05, 2010, at 9:11 PM, CASEY895 wrote:

    I seriously hate motley fool they are never right just do the opposite and you will make money lol! Whoever wrote this article is retarded how about you short nbg at this level and hold it for a year??

  • Report this Comment On May 05, 2010, at 10:45 PM, jomueller1 wrote:

    Learn German and you can read articles that are not written like novels or fairy tales. I do not know where the writers get their education and I do not know if they are just writing for a stupid and undemanding readership but I know that I am quite unhappy with the style. There is never anything that you could use as a base for decision. It is just blah blah. Much like my rant.

  • Report this Comment On May 05, 2010, at 11:01 PM, ragedmaximus wrote:

    I noticed all last week nbg was up even with the greek econ in the news this week tuesday market down wed market down showing riots in greece on tv market down early looks like armaggedon is coming then bam the sun comes out and the market goes up green like nothing happened! WTF I sold some stock yesterday watched it go down today and i was happy cause friday when my cash clears i was going to get it cheaper then this shi47454978t happens and it goes right back to where i sold WTF is this scam market pulling,then I hear it's legal for congress to short the down market and use insider information to trade ok ok now I just wanna kill somebody this is all BS wall street is a scam looking for bagholders and don't get me started on the mm market makers the action i see and all the lowlife scams going on behind the scenes hows average joe supposed to survive!

  • Report this Comment On May 05, 2010, at 11:14 PM, APPLERD wrote:

    Many in the news media and advertisng are about fear. It gets annoying after a while. It really doesn't help solve any problems to keep hammering on the negative. We need to keep positive outlooks.

  • Report this Comment On May 05, 2010, at 11:16 PM, CASEY895 wrote:

    LOL dont sell nbg right now it will double in a year for sure Just like all the U.S. bank stocks did dont sell beacause of panic its already at or around its low It cant go down anymore! I bought yesteraday at 279 and holding for 6 months or a year! Its one of the few stocks that went up on a crazy day thats how you know its at or around its low!

  • Report this Comment On May 06, 2010, at 12:48 AM, joandrose wrote:

    Regardless of the value or otherwise of MF concerns about Dryships et al - the fact remains that the crisis in Greece can snowball and dramatically affect the pockets of you and I.

    Greece should not be bailed out by the IMF and Eurozone .Why should the Germans and other responsible members of the Eurozone pay the bill for blatant Greek stupidity, lies and greed !

    Grasp the nettle. The Greeks should be left to sink.

    Cut them out of the Eurozone before they drag others down with them. Let them re-adopt the Drachma as their currency - and watch it fall like a stone. Greece will then discharge it's external debt by the country and everything in it becomming worth much less as a result of the fall in the Drachma exchange rate vis-a-vis other currencies.

  • Report this Comment On May 06, 2010, at 9:58 AM, MKantzler wrote:

    Germany’s or any other nation’s reluctance to bail-out Greece is quite understandable. With Greece’s heavily socialist-biased economy in conflict with its democratic system of government, providing three-week vacations and full-salary retirements at age 55, other Euro-nations have to see throwing money at them the same way Americans see their TARP funds going to pay obscene Wall-Street salaries and bonuses.

    The riots, while criminal, given the basis, are tantamount to an obese, brat kid screaming and throwing toys after its candy bar is taken away, and the behavior does nothing to soften the international view of the Grecian’s self-made predicament. The more the Greeks scream and kick, the better it is for the economic outlook, because it means painful austerity is being imposed where irresponsible exuberance has been the generational norm, and that’s good for markets, especially banks, which make money on the movement of money in any environment.

    With this understanding, it’s hard to see the market downturn of the first week of May as being anything more than the exercise of a pent-up desire to take profit, executed on the basis of the excuse provided by the Greece-Euro conflict, as an emotional response fueled by fear and excessive caution. The proof of the U.S. recovery’s legs is in, the value basis of U.S. companies is not moving in the down direction of investor response to Europe’s debt remedies, and the wrenching away of Greece from the unsupportable, playground economics of Leninism marks a buying opportunity in a short-term, knee-jerk, market pull-back.

  • Report this Comment On May 06, 2010, at 10:12 AM, Xrat wrote:

    Sure the Greeks are screaming.., but that could be in any country in the western world. Call it a country or a bank, we've all been hit.

    Those at the top take million dollar salaries (because they're good at their jobs and no-one else could do it) yet when the system fails it's those at the bottom who are told 'It's too big to fail, you'll have to bail it out'

    The newsflash is, 'Clearly you're not so good at your job..., and you're not worth a million dollar salary'

    The Greeks are just expressing themselves in their own way..., I'm not saying it's right, just that it's always those who can least afford it who are expected to bail out the big boys, who keep right on taking big bucks and telling the little guy he doesn't understand.

  • Report this Comment On May 07, 2010, at 1:39 PM, muzzybelly wrote:

    It would probably help matters if Ms. Lomax had even a basic understanding of Keynesian economics. Apparently she does not. Keynesians do not believe in structural long-term deficits, but quite the opposite.

    Sovereign debt in the developed world is not a reason for hysteria. Greece is its own creature, but the fears of contagion are just that -- fears.

    If Merkel had embraced the Keynesian remedy for Greece months ago instead of dilly-dallying around, Spain, Portugal, wouldn't be in this mess. Euro-land instability is Merkel's fault.

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