The Economic Crisis in Europe

[Kobi]

The is both fascinating and very scary. Wreaks of further attempts toward a one world order through Milton Friedmans disaster capitalism projects gone wild. Create multiple crises, inflict illogical economic policy, wait for inevitable implosion, fuel the fire as needed as part of coercion policies, then invoke what you will with enormous gains for a few and catastrophic losses for many.

And, seems like it is just a matter of time before they drag us into this mess as well. We have been resisting for decades, but are now more vulnerable than ever.

Wondering what other views on countries relinquishing power over their economic wellbeing to a central source. Seems incredibly bizarre to me.
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ROME/BERLIN (Reuters) - A comprehensive solution to the euro zone debt crisis is beyond the region's reach, rating agency Fitch said, warning that six of its economies including Italy and Spain could be hit with credit downgrades in the near future.

The warning late Friday, the second time in two weeks that the bloc has been threatened with multiple ratings markdowns, heightened pressure on leaders to get to grips with the turmoil.

Fitch also said it might also cut AAA-rated France within two years and urged the European Central Bank to take a more active firefighting role.

One ECB policymaker said Saturday that time was running out to come up with solutions to a crisis that could spark a global slump. Another said the bank would not expand the bond buying program it launched to keep a lid on vulnerable states' debt costs.

Underscoring tensions within the bloc, a week after a key EU summit failed to reassure financial markets the crisis was being tackled, Italy's Prime Minister Mario Monti urged EU policymakers Friday to beware of dividing the continent.

ECB ratesetter Erkki Liikanen said that, to prevent a flurry of ratings downgrades and a credit freeze, the continent's leaders needed to act fast to beef up the rescue funds designed to provide a safety net for debt-laden member countries.

"The worse scenario is that the negative cycle continues, uncertainty grows, which would lead to a global recession," Liikanen - a member of the bank's governing council -told Finnish public broadcaster YLE in an interview Saturday.

International Monetary Fund head Christine Lagarde had said no country was immune from the crisis and each needed to act to head off the risk of a global depression.

In a swipe against Germany, Italy's Monti said Europe's response "should be wrapped in a long-term sustainable approach, not just to feed short-term hunger for rigor in some countries."

Pushing for governments to eliminate their bloated budget deficits, Germany has led resistance to allowing the ECB to ramp up its bond purchases to a big enough scale to douse the crisis.

But Fitch added to the pressure for just such a move.

The agency said that, following the EU summit, it had concluded that "a 'comprehensive solution' to the eurozone crisis is technically and politically beyond reach."

"Of particular concern is the absence of a credible financial backstop," it said. "In Fitch's opinion this requires more active and explicit commitment from the ECB to mitigate the risk of self-fulfilling liquidity crises."

A second ECB policymaker, Juergen Stark, said expanding bond buys would not end the crisis, while swift implementation of the plan on closer fiscal union agreed at the summit was crucial.

"Don't ask too much of the central bank," Stark - who steps down from the executive board at year-end - was quoted as saying Saturday in pre-released extracts from a German magazine interview.


MULTIPLE DOWNGRADE THREAT

Fitch put Belgium, Spain, Slovenia, Italy, Ireland, and Cyprus on negative watch, which could mean a downgrade within three months.

"The systemic nature of the euro zone crisis is having a profoundly adverse effect on economic and financial stability across the region," it said.

Less than two weeks earlier, citing continuing disagreements among policymakers over how to tackle the crisis, rival agency Standard & Poor's put the ratings of 15 euro zone states, including Germany and France, on review for one- to two-notch downgrades.

The third main agency, Moody's, Friday cut Belgium's credit rating by two notches, saying the crisis raised funding risks for countries with high public debt burdens, and said a further downgrade was possible within two years.

Belgium's Finance Minister Steven Vanackere told Reuters on Saturday the cut was not a big surprise but had added pressure on the country to hit next year's budget deficit target of 2.

A first draft of a planned new 'fiscal compact' among euro zone countries and aspiring members, published Friday, showed that countries could be taken to the European Court of Justice if they did not meet agreed budget goals.

German Chancellor Angela Merkel - under pressure from the Bundesbank to force debt-saddled euro zone countries to reform and save their way out of crisis with austerity measures - has led a push for automatic sanctions for deficit "sinners."

This has fed concerns that excessive belt-tightening in southern countries could send their economies into a negative spiral with no prospect of growing out of crisis, while feeding resentment in the prosperous north.

In France, officials have sought to prepare the public for the likelihood that Paris will lose its top-notch rating for the first time since 1975, playing down the potential setback and focusing attention instead on questioning neighboring Britain's AAA rating. President Nicolas Sarkozy had vowed to keep the top rating, and it could become an issue in next year's election campaign.

EFSF FIREPOWER

Euro zone officials said potential downgrades, particularly from S&P, could raise the cost of borrowing for the region's existing EFSF bailout fund, but would not make a big difference to its operations.

EFSF chief Klaus Regling said Friday about 600 billion euros was available to fight the crisis.

"If Italy and Spain were to ask for support, their gross financing needs for 2012 are less than that and I don't think they would need to be taken off the market," he said.

Euro zone countries will hold talks next Monday on the draft text of the euro zone fiscal compact and on bilateral loans to the International Monetary Fund, officials in Brussels said. Slovak Finance Minister Ivan Miklos told Reuters they would commit 150 billion euros to boost the IMF's lending capacity.

The United States has refused to offer additional funding and it remains to be seen how much countries such as China, Russia, Brazil and India are willing to commit.

Commercial banks appear to be resisting pressure from governments to help debt-choked euro zone countries by using cheap money lent by the ECB to buy more sovereign bonds.

The chief executive of UniCredit, one of Italy's two biggest banks, said this week that using ECB money to buy government debt "wouldn't be logical."

Euro zone governments need to sell almost 80 billion euros of fresh debt in January alone, and the stand-off between policymakers and banks could turn the slow-burning debt crisis into a conflagration in the New Year.

http://news.yahoo.com/fitch-comprehe...024403484.html

[Cin]

Austerity Plans Are Based on the Wrong Diagnosis of the Wrong Problem -- And May Plunge Europe into Depression

Governments must be able to spend strategically to encourage growth, or the crisis will only get worse.

Even if European politicians ‘get their acts together,’ the eurozone crisis will not be solved by a new ‘Fiscal Compact’ obsessed with austerity, i.e. tight rules for all member states on their spending. The agreement, which is intended to save the single currency, is not a “fiscal” anything, since that word usually refers to government spending. The plan is really an Austerity Compact – an attempt address economic malaise based on upside-down thinking.

And it won’t work. Because as John Maynard Keynes revealed, the worst thing that a government can do during a recession is to lower spending. And yes, all of Europe is in a recession, and probably a depression soon. Private investment spending is cyclical in nature -- too much during up-boom periods and too little during down periods. That’s why government spending must act as a counter-balance. Instead, what we have seen is government actions fueling private sector spending (with lower interest rates and lower taxes) in boom periods (like the 1990s), and now withdrawing spending during the recessionary period when there is not enough private investment.

This is exactly the opposite of what should happen.

But the main problem with the ‘Austerity/Fiscal Compact’ solution is not just that it won’t work for Keynesian reasons, but that it is based on exactly the wrong diagnosis of the problem. The austerity solution assumes that the problem with countries like Portugal, Ireland, Italy, Greece, and Spain (PIIGS) that are peripheral to the eurozone (and the list is growing) is that they ‘spent too much.’ As I have now argued endlessly in various media outlets, this idea is completely false. In fact, the pre-crisis deficits of all EU countries (except Greece) were in line with the target rates of 3-4%. Deficits started to rise in 2007 after government spending rose to fund stimulus packages and bailouts. If you look at Spain, currently one of the most problematic countries, you will find that it had one of the lowest deficits before the crisis, and even one of the lowest ratios of debt to economic output (debt-to-GDP).

Growth and Speculation are the True Culprits

Instead, the real problem has been two-fold: a growth crisis and a speculation crisis.

The growth crisis developed from the fact that the periphery countries, especially Italy and Greece, had not been making the ‘smart’ investments in areas like human capital formation, training and research and development (R&D) which can increase productivity. In fact, Italy has one of the lowest rates of R&D spending (and productivity growth) in Europe. And if productivity remains low, so will growth.

As long as the growth rate remains lower than the interest rate paid on the debt, the debt/GDP ratio will by definition keep increasing. And it is this ratio that worries investors.

The speculation crisis has arisen because the European monetary union was not supported by a proper European Central Bank willing to act as a lender of last resort. This failure has caused bond market speculators to place bets on the ability of countries to pay back their high debts. Look at the case of the UK: Even with a very low growth rate, the UK has not been attacked (yet) by the bond markets because despite its low growth, it will never default on its debts, given the willingness of the Bank of England to be the lender of last resort.

Driving Down Wages Will Hurt, Not Help

But coming back to the problem of growth and ‘competitiveness’, many (even progressive commentators) have pointed the finger to so-called ‘structural reforms’ and/or the need for the ‘global imbalances’ to be corrected. While corruption must indeed be fought against, tax evaders should be punished, and labor markets need to help the young and not only the old, it is wrong to think that the problem stops there.

Indeed, Germany is accused of reaping its ‘surplus’ by suppressing wages with rising productivity (the result of the 'Schroeder reforms', labor reforms named after the former German Chancellor Gerhard Schroeder). The figure below showing Germany’s relatively low unit labor costs has been used by many to suggest that lowering wages is a good thing.



This view has now put much pressure on countries to lower wages through a more flexible labor market as the main route to achieving German-style competitiveness and rebalancing the European economies (making German goods have less of a cost advantage, hence reducing Germany's trade surplus). In other words, because countries within the EU don’t have the option of devaluing their currency, they are forced to turn to internal devaluation in the form of wage decreases and constant monitoring to make sure this happens.

There are several problems with this approach. The first is that actually it is ‘real’ wages that matter most, i.e. wages that also take into account indirect payments and benefits received by a nation’s citizens (things like cheap public housing; state subsidized nurseries; generous unemployment benefits). In this case, the picture in Germany looks different. The data below show that Germany's ‘real’ wages (including welfare contributions) to be relatively high, not low.


Low wages to do not benefit economies. In fact, they take money out of the pockets of consumers and decrease the demand for goods and services. When that happens, companies that cannot sell their products will lay off workers and stop spending on equipment and so on. All of which creates a vicious cycle of further economic deterioration.

In reality, much of Germany’s competitiveness is not due to it paying low wages but instead comes from its high spending in critical areas like R&D, human capital, and its finance system that supports ‘patient’ capital rather than the short-termism of the UK and US model. In fact, Germany’s publicly funded R&D has increased more than that in any other EU country even after the crisis. This is not to say that differences in unit labor costs have played no role, simply that they have been over-emphasized, damaging our ability to think clearly about the root of the problems.

If Germany wants its neighbors to be more ‘stable’ and competitive, then those governments need to be able to spend strategically as Germany has done, and their workers need to have decent wages that support the demand for goods and services. This is currently impossible due to German Chancellor Angela Merkel’s insistence that the cause of the crisis is spending too much and the solution fiscal austerity.

That's the wrong diagnosis and wrong solution.

http://www.alternet.org/world/153656...on?page=entire

[Cin]

1. Back-door Bailout of the Eurozone

Would you like more of your hard-earned money to flow to fatcats? Wish granted! Attorney Walker Todd, who spent two decades in the legal departments of the Federal Reserve Banks of New York and Cleveland, names the back-door bailout of the eurozone banking system by our very own Federal Reserve as the top economic story of the upcoming year – or, at least one of the most outrageous. In a nutshell, the Fed is helping European banks by opening up the short-term ‘emergency’ lending pipeline, which means that U.S. taxpayers are indirectly bailing out private European capitalists. This is being done through a bit of financial hocus pocus called “swaps” – essentially the trading of dollars for euros. Such a maneuver allows the Fed to prop up European banks while claiming that it is not 'technically' directly lending. In other words, swaps are an attempt to hide the truth from the public.

As Gerald O’Driscoll put it in the Wall Street Journal: “This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light.” O'Driscoll observes that the Fed has no authority to bail out European banks and warns of what economists call “moral hazard” – the nasty habit of banks to engage in even riskier behavior when they get bailed out.

Why is this happening? Well, because the squid is strangling morality, democracy, and the rule of law. We pay, they play. “This is an attempt by our own governing elites to maintain a false vision of how the world works, or how ‘we’ think it should work,” Todd told AlterNet. “This comes at the expense of many people who never will go to Europe, who know no European bankers, and who have no European bank accounts.”

You may not know a European banker, but you can be sure that one is just now raising a glass of bubbly in your honor. After all, you paid for it.

http://www.alternet.org/story/153604...rends_for_2012

[Cin]

Italy, a wholly owned subsidiary of Goldman Sachs.

Goldman Sachs conquers Europe



While ordinary people fret about austerity and jobs, the eurozone's corridors of power have been undergoing a remarkable transformation

[Kobi]

WASHINGTON/MEXICO CITY (Reuters) - The International Monetary Fund is seeking to more than double its war chest by raising $600 billion in new resources to help countries deal with the fallout of the euro zone debt crisis, but the United States and other countries are throwing up roadblocks.

The United States and Canada said on Wednesday Europe must put up more of its own money to solve its sovereign debt crisis, clouding prospects that G20 talks in Mexico this week can lay the ground for a deal on bolstering IMF resources.

"We continue to believe that the IMF can play an important role in Europe, but only as a supplement to Europe's own efforts," a U.S. Treasury spokesperson said. "The IMF cannot substitute for a robust euro area firewall."

Group of 20 deputy officials are set to discuss boosting IMF resources, which will need leaders' signoff, at a meeting in Mexico City on Thursday and Friday ahead of a late February finance ministers' meeting of advanced and development nations.

The IMF currently has a lending capacity of about $380 billion and estimates there are about $1 trillion in "uncovered" financing needs over the next two years.

"Based on staff's estimate of global potential financing needs of about $1 trillion in the coming years, the fund would aim to raise up to $500 billion in additional lending resources. This total includes the recent European commitment of about $200 billion in increased fund resources," an IMF spokesman said.

"At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations," he added.

IMF sources who were present at an IMF board meeting on the issue on Tuesday told Reuters the IMF was seeking to raise up to$600 billion, with $100 billion needed as a "protection buffer."

There would be a $1 trillion global financing gap over the next two years if global economic conditions worsened considerably, the sources added.

The U.S. repeated that it would not contribute more resources to the IMF.

"We have told our international partners that we have no intention to seek additional resources for the IMF," a Treasury spokeswoman said.

With a strained budget at home, some U.S. congressional Republicans have threatened to yank $100 billion in U.S. money to the IMF if the funds are used to bail out euro zone countries. The White House is unlikely to want to take on the issue as President Barack Obama seeks reelection this year.

On foreign exchange markets, the reports of plans for increased IMF lending capacity helped boost the euro.

Euro zone nations have already promised to inject an extra 150 billion euros ($200 billion) into the IMF, which is included in the total estimate. G20 officials in Mexico for the meeting of deputy finance ministers and central bank officials said there was still resistance in some quarters to increase funding.

"Many countries want the Europeans to move ahead with tougher and clearer measures, which at this moment translates to more resources to its stability fund," said a senior Brazilian government source attending the meeting.

Bank of Canada Governor Mark Carney said it was not clear European governments had done everything necessary to make sure they could fund themselves at sustainable interest rates over the next few years.

"If it makes sense to enhance the resources of the IMF, the principal focus, it would seem, should be on dealing with fallout of the European crisis for innocent bystanders," he told a news briefing in Ottawa.

Another source connected to the process said that as well as Canada and the United States, Japan and Korea were also pressing for discussions first about Europe's contribution to the crisis and for it to agree on additional measures. European nations were arguing that they have done enough and were calling for more IMF resources now.

"If, with the parallel discussion, we can achieve extra measures from the Europeans and afterwards agree on promises of additional resources for the IMF from non-European countries in the G20, I think it would be a good result," the source said.

RESOURCES STRETCHED

The IMF currently has a lending capacity of about $380 billion and estimates demand could be about $ 1 trillion in the medium-term.

"Based on staff's estimate of global potential financing needs of about $1 trillion in the coming years, the fund would aim to raise up to $500 billion in additional lending resources. This total includes the recent European commitment of about $200 billion in increased fund resources," an IMF spokesman said.

"At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations," he added.

Emerging market countries such as China and Brazil have said they are willing to contribute new resources to the Washington-based global lender in exchange for greater voting power. Emerging market powers have repeatedly argued in recent times that their power at the IMF should be increased to reflect their growing clout in the world economy.

The IMF's managing director, Christine Lagarde, said on Tuesday she met with the IMF board to assess whether the global lender needs additional funds to respond effectively to the euro zone crisis. She said IMF management would explore options for increasing the fund's firepower.

The IMF has warned it will cut global growth projections for 2012 when it updates its forecast on January 24. Weakening global growth prospects raise fears that more countries will need to be rescued by the IMF, especially if capital markets freeze up completely.

The World Bank warned in its annual growth outlook late on Tuesday that Europe appears to already be in recession and developing countries should brace for a slowdown in their economies, especially Brazil and India, and to a lesser extent Russia, South Africa and Turkey.

With credit downgrades in nine euro zone countries by Standard & Poor's last week, including France, and uncertainty over Greek debt talks that risk pushing the country into default, the IMF board has urged euro zone leaders to take steps to contain the crisis.

The board called for policies that would address the European crisis and for euro zone policymakers to make sure there is enough money available to tackle the bloc's debt problems effectively.

http://news.yahoo.com/imf-seeks-more...000810904.html

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I see another house of cards with a really shakey foundation. Hope whomever makes the right decisions or it will get very ugly, very quickly.

[Cin]

Originally Posted by Kobi

I see another house of cards with a really shakey foundation. Hope whomever makes the right decisions or it will get very ugly, very quickly.

See I might be missing something here, but I think that is precisely the point. The uglier the better. Quicker not so much. No rush. The more time, the more money can be squeezed out of these crises.

Hedge funds and credit default swaps seem to be holding the world hostage.

Let's look at how this is playing out in Greece (and in time will play out everywhere.)

Hedge funds are minimally regulated and privately managed investment funds arranged so the rate of return is ridiculously high, easily far in excess of 10%. To accomplish these kinds of returns, hedge funds walk dangerously close to the edge.

So the thing is Greece can't pay off its loans. The EU and the IMF offer them a bailout package in exchange for enormous cuts in government spending and painful sacrifices by the Greek people. Hedge funds, which by the way must involve real people and real corporations, and there are about 8000 in the world, but in my research they are always referred to as simply hedge funds as though this financial terrorism is being conducted by inanimate objects, anyway, hedge funds have been buying up Greek debt. (Sound familiar? It should. Think housing debt.)

The EU wants to recall old bonds and replace them with new ones at lower interest. Now that would cost these bond holders money and they don't like to sacrifice anything, no matter how small, to help pay for the financial problems they create. So hedge funds are refusing the offer of the EU. Now you might ask why would they do that? If Greece defaults on the very bonds the hedge funds own won't that be like biting your nose to spite your face? Nope. Not at all. Actually quite the opposite. Why is that you might ask? And I hope you do.

Well, first off the financial elite that make up these hedge funds that have been buying up Greek bonds are in no hurry for the party to end and they want to get their hands on as much of the bailout money as possible, the suffering of the Greek people is as inconsequential and moving to them as the suffering of insects are to us. But, you may say, if Greece defaults won’t the holders of these bonds end up with nothing at all. Wrong again. Because, and this is the beautiful part of all this, the fact is that hedge funds have covered their bets with CREDIT DEFAULT SWAPS (these might also sound a little familiar, once again think US housing crisis then remember the derivatives involved, called weapons of mass destruction by Buffet, same game, still happening, the masters of the universe won't be happy till they destroy the world). Credit default swaps are financial insurance that would pay them the full value of the bonds (so why would they accept a deal where the bonds are discounted so Greece can afford to pay off its debt).

The problem with all this is that the entire financial system might collapse if Greece defaults. It’s like using a nuclear weapon in a way. If one bank fails to deliver it could set off a chain reaction of financial defaults around the globe.

Credit default swaps have been likened to nuclear weapons in that you can have them but you best not use them.

Before Wall Street and the financial world lost it's fucking mind, it used to be that bankers didn’t bet against their clients. If a client was successful the banker was successful. If the credit risk was bad you didn’t extend the loan or secured the loan with a lot of collateral, you didn’t give the person the loan and buy a credit default swap. This crap is ridiculous, toxic and financially destabilizing.

So what you see going on in Greece is financial blackmail by the hedge fund who holds the bonds. It’s like a game of chicken. And they get away with it because a large part of the word’s financial system has, of lately, been built with magic, voodoo, imaginary money and toxic economic practices and everyone knows it won’t take much for it all to come crashing down.

Apparently no one can stop these people.

Financial terrorism and economic weapons of mass destruction, how come we don’t declare war on them?

[Kobi]

"Financial terrorism and economic weapons of mass destruction, how come we don’t declare war on them?"



Good point. My only question is who is the "we" you are referring to?

Is the "we" our own financial institutions who stand to make a killing here, or if they make the wrong decisions, will throw the world into a depression and utter chaos?

Is the "we" the US government who is the means to an end for those mentioned above? The government who put the taxpayers on the hook for billions and trillions without requiring any accountability or punishment for those who created this mess? The government that employes the key figures in the meltdown in strategic positions and appointments?

Is the "we" the the individual taxpayer who has tasted what it is like to reap the fortunes in high risk stakes and then watched their fantasy burst as the house of cards came tumbling down? Is it the people who are struggling just to survive and who still believe there is a magical answer that will restore their fantasy life to solvency and financial growth? Is it the people who can recite the marketing they were sold but have little clue as to how this entire game is played in totality and by what rules?

Who do you expect to wage this war?

[Cin]

Originally Posted by Kobi

"Financial terrorism and economic weapons of mass destruction, how come we don’t declare war on them?"



Good point. My only question is who is the "we" you are referring to?

Is the "we" our own financial institutions who stand to make a killing here, or if they make the wrong decisions, will throw the world into a depression and utter chaos?

Is the "we" the US government who is the means to an end for those mentioned above? The government who put the taxpayers on the hook for billions and trillions without requiring any accountability or punishment for those who created this mess? The government that employes the key figures in the meltdown in strategic positions and appointments?

Is the "we" the the individual taxpayer who has tasted what it is like to reap the fortunes in high risk stakes and then watched their fantasy burst as the house of cards came tumbling down? Is it the people who are struggling just to survive and who still believe there is a magical answer that will restore their fantasy life to solvency and financial growth? Is it the people who can recite the marketing they were sold but have little clue as to how this entire game is played in totality and by what rules?

Who do you expect to wage this war?

Actually I was just poking fun at how the US always declares war on inanimate objects like drugs, terror and poverty. I don't actually expect anyone to declare war on Wall St.

Although it would be nice...

I don't expect anything to change at all. There are no restraints being put on these people and there is no intent by our government or our elected officials to ever do so. And clearly no one in Europe is prepared to call the bluff of hedge funds. Nobody is going to put a stop to or some controls on derivatives.

The only change I can see is that, because derivative got a bad name with the people who actually understand the housing market debacle wasn't about some people getting loans they couldn't afford and some people who couldn't pay their mortgages destroying the world's financial system, we won't hear the term derivatives thrown around much anymore. But rest assured they are alive and well and pointed directly at the heart of our financial security. Credit default swaps are derivatives. Very, very dangerous derivatives. And still no restraints in sight.

[Kobi]

Originally Posted by Miss Tick

Actually I was just poking fun at how the US always declares war on inanimate objects like drugs, terror and poverty. I don't actually expect anyone to declare war on Wall St.

Although it would be nice...

I don't expect anything to change at all. There are no restraints being put on these people and there is no intent by our government or our elected officials to ever do so. And clearly no one in Europe is prepared to call the bluff of hedge funds. Nobody is going to put a stop to or some controls on derivatives.

The only change I can see is that, because derivative got a bad name with the people who actually understand the housing market debacle wasn't about some people getting loans they couldn't afford and some people who couldn't pay their mortgages destroying the world's financial system, we won't hear the term derivatives thrown around much anymore. But rest assured they are alive and well and pointed directly at the heart of our financial security. Credit default swaps are derivatives. Very, very dangerous derivatives. And still no restraints in sight.

Dang it Tick. Here I am thinking you had some clandestine plan to help people to regain control of their minds, country and economics. Instead, it was a poignant rhetorical question. Poop. Me bad. Me have doofus moment.

The interesting part of this to me, is these complex,virtually incomprehensible investment instruments were concocted by mathematicians and statisticians who redefined economic possibilities and probabilities to Las Vegas style packages for the masses.

We must find more of these wizards. But, they must be the few with a conscience, whose focus is towards the good of the whole rather than the coffers of the few.

We need Harry Potter, invisibility cloaks, moving maps, hogwarts (Newt doesnt count), and all things magical to reverse the course and the curse.

I must ponder this further while my brain cells are still soaked in the soothing and illuminating nectar of NyQuil.

[Cin]

Originally Posted by Kobi

Dang it Tick. Here I am thinking you had some clandestine plan to help people to regain control of their minds, country and economics. Instead, it was a poignant rhetorical question. Poop. Me bad. Me have doofus moment.

The interesting part of this to me, is these complex,virtually incomprehensible investment instruments were concocted by mathematicians and statisticians who redefined economic possibilities and probabilities to Las Vegas style packages for the masses.

We must find more of these wizards. But, they must be the few with a conscience, whose focus is towards the good of the whole rather than the coffers of the few.

We need Harry Potter, invisibility cloaks, moving maps, hogwarts (Newt doesnt count), and all things magical to reverse the course and the curse.

I must ponder this further while my brain cells are still soaked in the soothing and illuminating nectar of NyQuil.

LOL. I wish I had an plan.

I read somewhere how it used to be the sciences that tried to recruit all the great minds of a generation but now it's the financial sector.

Wizards with a conscience...if only...

Ah if only these wizards would use their powers for good instead of evil.

But the thing is the minute you begin to do good your powers start to fade until eventually they disappear completely.

It really a strange new world.

[Ciaran]

Originally Posted by Miss Tick

LOL. I wish I had an plan.

I read somewhere how it used to be the sciences that tried to recruit all the great minds of a generation but now it's the financial sector.

Wizards with a conscience...if only...

Ah if only these wizards would use their powers for good instead of evil.

But the thing is the minute you begin to do good your powers start to fade until eventually they disappear completely.

It really a strange new world.

There's nothing new about financial engineering. It's been with us for many centuries via secondary markets which led to (in)famous scenarios such as the Dutch tulip crisis in the 17th century and the South Sea Bubble the following century.

The terminology, such as credit default swaps and derivatives, has got more complex and technical but the same concepts have been around throughout modern history. The may appear mystical but, intrinsically, instruments such as credit default swaps are ways to better manage risk - in other words, to ensure that the investor doesn't lose money.

The issue isn't, therefore, the instrument or the technology behind it. Rather, the issue is a much more basic one of borrowing of resources to speculate i.e. speculators will borrow significantly on positions with the result that, if their positioning is wrong, not only do they lose out but others do too. Sometimes this has significant negative consequences as we've seen recently.

On the issues you mentioned above of credit default swaps and how hedge funds are holding Greece to ransom. It's not hedge funds holding Greece to ransom. Rather, it's parts of the European Union apparatus that do not want an actual default of Greek sovereign debt for fear that this will have a domino effect sending the "house of cards" that is the Eurozone crashing down through similar defaults in other Eurozone countries, most likely Portugal & the Republic of Ireland and, more worryingly due to scale, Spain and Italy.

I have significant sympathy for the hedge fund position on this as investors are effectively being asked to agree to a default that is optically not to be called a default, with the effect that the credit default protection does not kick-in. Are there investors using this process for their short-term speculative purposes? Of course, but that doesn't take away from the fact that we're in an "emperor's clothes" scenario where the European political establishment is trying to orchestrate the inevitable Greek default through a "smoke & mirrors" approach whereby no official default is registered.

If I were an investor, who had CDS protection, I certainly wouldn't agree to that but, then again, I'm not an advocate of this European project and have a loathing of the European Union.

Furthermore, there already is significant financial regulation in place and prospective regulation that is being introduced over this coming decade. The key, from my perspective, isn't necessarily more regulation. Rather, it's about better regulation which can sometimes be less regulation as less is often more. This regulation needs to embrace a very simple and straightforward concept - that is the concept of moral hazard which, in simple terms, is you either pay back your debts or you suffer real consequences as a result.

This needs to be enshrined as regards all speculation, whether it's the large faceless fund using technical instruments in an attempt to make many $ millions or the man or woman who buys a condo with a 90%+ mortgage in the hope of capital appreciation.

[Cin]

Originally Posted by Ciaran

There's nothing new about financial engineering. It's been with us for many centuries via secondary markets which led to (in)famous scenarios such as the Dutch tulip crisis in the 17th century and the South Sea Bubble the following century.

The terminology, such as credit default swaps and derivatives, has got more complex and technical but the same concepts have been around throughout modern history. The may appear mystical but, intrinsically, instruments such as credit default swaps are ways to better manage risk - in other words, to ensure that the investor doesn't lose money.

The issue isn't, therefore, the instrument or the technology behind it. Rather, the issue is a much more basic one of borrowing of resources to speculate i.e. speculators will borrow significantly on positions with the result that, if their positioning is wrong, not only do they lose out but others do too. Sometimes this has significant negative consequences as we've seen recently.

On the issues you mentioned above of credit default swaps and how hedge funds are holding Greece to ransom. It's not hedge funds holding Greece to ransom. Rather, it's parts of the European Union apparatus that do not want an actual default of Greek sovereign debt for fear that this will have a domino effect sending the "house of cards" that is the Eurozone crashing down through similar defaults in other Eurozone countries, most likely Portugal & the Republic of Ireland and, more worryingly due to scale, Spain and Italy.

I have significant sympathy for the hedge fund position on this as investors are effectively being asked to agree to a default that is optically not to be called a default, with the effect that the credit default protection does not kick-in. Are there investors using this process for their short-term speculative purposes? Of course, but that doesn't take away from the fact that we're in an "emperor's clothes" scenario where the European political establishment is trying to orchestrate the inevitable Greek default through a "smoke & mirrors" approach whereby no official default is registered.

If I were an investor, who had CDS protection, I certainly wouldn't agree to that but, then again, I'm not an advocate of this European project and have a loathing of the European Union.

Furthermore, there already is significant financial regulation in place and prospective regulation that is being introduced over this coming decade. The key, from my perspective, isn't necessarily more regulation. Rather, it's about better regulation which can sometimes be less regulation as less is often more. This regulation needs to embrace a very simple and straightforward concept - that is the concept of moral hazard which, in simple terms, is you either pay back your debts or you suffer real consequences as a result.

This needs to be enshrined as regards all speculation, whether it's the large faceless fund using technical instruments in an attempt to make many $ millions or the man or woman who buys a condo with a 90%+ mortgage in the hope of capital appreciation.

You say that if you were an investor, who had CDS protection, you certainly wouldn't agree to a default that wasn't going to be technically called a default, I read it as simply lowering the payments to where Greece could afford it, but either way, you also said you should either pay back your debts or suffer real consequences. Don't people who buy bonds, like the hedge funds who bought Greek bonds fall under the category of deserving to suffer real consequences? I mean they bought the bonds promising ridiculous yields from a country that is crumbling. WTF is that about. Well it's about betting against the very bonds they are buying with freaking credit default swaps. To me if you are playing the investment game then you need to man up and take your loses when they happen. I'm sick of this insurance crap. I'm not an advocate of double dipping, taking ridiculous risks, getting bailouts as well as having insurance so you can't lose any which way the cookie crumbles and never having to take a loss no matter what happens to the world around you.

Credit default swaps, credit derivatives and derivatives in general have not, to my knowledge, nor to anyone's knowledge that I can find, been around for centuries and they certainly haven't been around in this form. They have been around since the 1990s with increased usage after 2003. They are not better ways to manage risk in my opinion. They are ridiculous ways to eliminate risk for the lender. They are ways to make bets and turn the financial sector into a gambling casino.

The idea that you pay back your debts or suffer real consequences as a result is wonderful especially if you have insurance in the form of a credit derivative which means you get your money back no matter what. Why you might even want to see people default on their loans or mortgages. While these kinds of investments are made, betting against the loans you yourself make, how will everyone suffer real consequences? They won't. The idea is ludicrous. More regulation is the answer in my mind. Bring back the days when you don't get money unless you have security, collateral to back it up, unless it is quite likely you will be able to pay back your loan. Right now lenders can make loans at will because there is no danger to them, just danger for the poor fools who borrow from them and the rest of the world. But the reality is that this gambling and this notional debt has destablized the economy. And there is a danger. A danger to everyone.

[Ciaran]

Originally Posted by Miss Tick

You say that if you were an investor, who had CDS protection, you certainly wouldn't agree to a default that wasn't going to be technically called a default, I read it as simply lowering the payments to where Greece could afford it, but either way, you also said you should either pay back your debts or suffer real consequences. Don't people who buy bonds, like the hedge funds who bought Greek bonds fall under the category of deserving to suffer real consequences? I mean they bought the bonds promising ridiculous yields from a country that is crumbling. WTF is that about. Well it's about betting against the very bonds they are buying with freaking credit default swaps.

If an investor has purchased sovereign debt and the appropriate protection via CDS, they should be able to avail of that protection. The issue is that CDS spreads on European sovereign debt were typically priced too low, given the inherent risks.

If I'm an investor with the appropriate insurance policy (which is what a CDS effectively is) then I want the CDS to kick-in when the default occurs. Simple as that.

Originally Posted by Miss Tick

Credit default swaps, credit derivatives and derivatives in general have not, to my knowledge, nor to anyone's knowledge that I can find, been around for centuries and they certainly haven't been around in this form. They have been around since the 1990s with increased usage after 2003. They are not better ways to manage risk in my opinion. They are ridiculous ways to eliminate risk for the lender. They are ways to make bets and turn the financial sector into a gambling casino.

CDS and derivatives have not been around for a long time but off-balance sheet instruments to manage risk which can / have been used for speculation have been around for centuries. These instruments may be more prevalent now but so is the financial services sector, and secondary markets, in general.

We've had casino banking in various forms throughout modern history. As I noted in my earlier post, the South Sea Bubble also destroyed much of the, then, British Empire and, separately, Scottish effectively lost its independence and became a part of the United Kingdom as a result of financial speculation.

The Wall Street crash of 1929 and its after effects is another appropriate example.

Originally Posted by Miss Tick

Right now lenders can make loans at will because there is no danger to them, just danger for the poor fools who borrow from them and the rest of the world.

Whatever manifesto or propaganda you're reading, you're three and a half years out of date here. The ability to securitise lending has been significantly impacted by the example of the off-balance sheet securitisations of residential and commercial mortgages and their value destruction in 2008.

The market isn't there for securitisations with the exception of significantly lower risk assets and, even then, the market is much less liquid.

[Kobi]

Ciaran this is very interesting stuff but still very problematic in my way of thinking.

In theory, all this stuff works well. In theory, it is all quite fascinating and intriguing. If the convoluted instruments and their equally convoluted risk minimizers work, it sets off an "irrational exuberance" of similiar and even more risky instruments. It becomes a feeding frenzy, almost a hysteria of one upmanship and pushing the limits of the game into unchartered territory in the quest for more and more.

Problem is, eventually, someone has to pay the price cuz the momentum of illogical instruments, insurance built-ins or not, can not be maintained over time. It is unsound speculation with no basis or foundation in reality. Paper money, paper profits, investment illusions with nothing of substance to back them.

The ones who end up paying in a global meltdown like was created this time, are the taxpayers and the citizens. Cost the US taxpayers, so far, over a trillion dollars to sure up an illusion with no basis in sound economic principles and no colleral. Sound economic principles deal in tangibles i.e. acceptable collateral of equal value.

The problem, to me, is multifaceted:

1. Risks one takes with ones own resources is ones own business. When others are dragged in, on a domestic or global basis, the ramifications are astounding - good or bad.

2. Instruments developed to exploit a market is one thing. Creating a market just to exploit it, is unacceptable and unethical in my mind.

3. The people, who end up holding the bag, should have protections to curb this irrational exuberence and keep it grounded in reality and tangibles. That, to me, is the responsible thing for both companies and governments to do.

Money and its accumulation is not an even playing field. Big companies and businesses can hedge their bets and offset potential losses with insurance stuff. Even that doesnt matter much when the ultimate insurer of bad investments is the taxpayer period.

You and I do not have that luxury. We pay the ultimate price. We lose our homes and jobs and belongings and lives AND IN ADDITION we are saddled with even more debt to bailout the booboos.

I dont know about you but to me that is a royally f***ed up way of treating people, doing business, and running the economics of a country.

4. Regulations are put in place for a reason - to curb the irrational exuberence that assign unacceptable and uninformed risk to an unsuspecting people. To dismantled them on a "trust us" basis or "we can regulate ourselves" basis is illogical. Regulations were instituted because it was proven this self regulation was a farce.

People being people have the tendency to take advantage of others for their own enrichment. It is a very sad but very real phenomemon.

[Cin]

Originally Posted by Ciaran

If an investor has purchased sovereign debt and the appropriate protection via CDS, they should be able to avail of that protection. The issue is that CDS spreads on European sovereign debt were typically priced too low, given the inherent risks.

If I'm an investor with the appropriate insurance policy (which is what a CDS effectively is) then I want the CDS to kick-in when the default occurs. Simple as that.

I just don't think this is sensible or even ethical. Again hedge funds purchased these bonds from a country on the verge of bankruptcy and then purchased insurance to cover their ass in case Greece defaults and it looks more and more like they actually want Greece to default. It's really despicable to me. I guess it's a good thing I'll never be an investor.

CDS and derivatives have not been around for a long time but off-balance sheet instruments to manage risk which can / have been used for speculation have been around for centuries. These instruments may be more prevalent now but so is the financial services sector, and secondary markets, in general.

We've had casino banking in various forms throughout modern history. As I noted in my earlier post, the South Sea Bubble also destroyed much of the, then, British Empire and, separately, Scottish effectively lost its independence and became a part of the United Kingdom as a result of financial speculation.
The Wall Street crash of 1929 and its after effects is another appropriate example.

My team just won and I want to celebrate and I really don't have the energy to tell you the difference between the crash of '29 and what is happening now. Besides I think you already know. And seriously I think credit derivatives are relatively new forms but whatever. They are toxic in their present incarnation. Toxic and dangerous. And we need more regulation. These financial terrorists have no consciences. They are out of control. And they won't be jumping out of any buildings like they did in 1929. It's not the investors who are losing everything.

Whatever manifesto or propaganda you're reading, you're three and a half years out of date here. The ability to securitise lending has been significantly impacted by the example of the off-balance sheet securitisations of residential and commercial mortgages and their value destruction in 2008.

What like the Communist Manifesto? I am not reading out of date news articles. I'll post some links.

The market isn't there for securitisations with the exception of significantly lower risk assets and, even then, the market is much less liquid.

No, the market isn't there for securitisations? Then what pray tell are credit default swaps? That's not secure? That's not securing an investment? They give risky loans or buy risky bonds or take whatever risks and then insure themselves from failure. With risky loans like what happened with the housing market they can bundle these bad debts sell them and somebody insures them and hopes the loans are defaulted on. I bet in some cases they do even more than just hope. I bet they set it up so defaults happen. Maybe by giving risky loans. Wait isn't that the collapse of the housing bubble. Old news I will agree. But still quite timely. And let's not forget the double dipping that goes on in the form of bailouts.

But here are some more current articles.

http://www.alternet.org/story/153795...y/?page=entire

http://www.economywatch.com/economy-...gedy-27-2.html

http://www.guardian.co.uk/world/2012...imf?intcmp=239