Every now and then I try to put my finance degree to use, but never for my own financial benefit for some reason. It caught my attention that Lebanese state-issued Eurobonds, which are bonds issued by a state (Lebanon in this case) in a foreign currency (USD in this case) to raise cash for state spending (let your imagination run wild in this case), are trading well below their face value, which means that if you buy these bonds on the market now you will get higher returns than initially promised by the issuing entity. The return on your investment right now would be over 20% per year, unless of course that issuing government defaults.
The fact that they are trading so low means that market speculators foresee a high risk of default, which means the government won’t settle the bond when it’s due, won’t pay the full amount due, or even won’t pay at all. To put this in perspective, many Ponzi schemers won’t dare to promise returns of over 20% for they might push their potential investors/victims to start questioning their methods. Heck, many Ponzi schemers here are probably shitting their pants that their fools might ask to cash out their money so that they can throw it into the Lebanese Eurobond fire.
There’s an investment theory that is taught at Business Schools called “The Biggest Fool Theory”, which basically says it’s ok to be a fool and pay for something a lot more than it’s worth as long as there is a bigger fool out there who is willing to pay you more than what you paid for it.
Years ago a Lebanese restauranteur, who illegally occupies seafront public properties and was getting some $30 a meal from the Lebanese state to deliver Taouk sandwiches to the displaced in Sanayeh park during the 2006 war, spent hundreds of thousands of dollars in an auction for “premium cellphone numbers”. He was then quoted saying: “We are running out of real estate in Lebanon, and phone numbers are the next investment frontier.” Needless to say, he was the biggest fool in the premium cellphone number market.
Soon after that incidents, many of this wiz’s restaurants shut down, save for a rent-free spot courtesy of Solidere, which is another example of Lebanese genius business acumen at work. This company, Rafiq Hariri’s second biggest heist after his public debt scheme, is losing at Monopoly while playing alone. It keeps drawing the “Go to Jail, Do not Pass Go, Do not collect $200” card, which could be seen as just bad luck, except they also print the cards. It takes a special kind of inept to lose at a game where you’re playing alone and you tweak the rules in your favor whenever you feel like it. The tax-exempted Solidere was supposed to be the shining jewel of the neoliberal economic project implemented in postwar Lebanon.
Nothing embodies the Lebanese economy going up in smoke like the recently levied tax on Argilehs. The Lebanese government's Cheech and Chong solution is to tax a bong served in a restaurant that doesn’t pay rent to a landlord that doesn’t pay taxes. Talk about putting out an Amazonian wildfire by blowing at it as if it were birthday candles.
Speaking of, Lebanon’s central bank chief Riad Salameh earlier this month completed his 26th year on the job. He says there’s nothing to worry about; your money is safe with him.