The Financial Mess

[magekillr]

Steve Randy Waldmann posits an interesting solution to the European debt crisis. It's linked here. Check it out.

[magekillr]

I wonder if Sarko and Merkel are still denying reality about a Greek default? Anyway, this is interesting (assuming you can understand financial speak):

 

Citi's Willem Buiter Warns What Happens If Greece Quits The Euro

[marcustullius]

So hey, the US government owns 250,000 houses right now that they don't know what to do with because of people defaulting on mortgages.

[sees_all1]

For the Euro to survive they either need to become the United States of Europe with a unified spending policy or kick out the pig nations and cut their losses

Because socialism doesn't work between countries, right? :grin:

[sees_all1]

For the Euro to survive they either need to become the United States of Europe with a unified spending policy or kick out the pig nations and cut their losses

Because socialism doesn't work between countries, right? :grin:

 

This would be the opposite of that. A unified spending policy would mean that Germany can object to Greeces paying employees for 14 months in a year. Etc.

 

Federalist systems are not socialistic. The problem with the Euro as is is that there is no incentive for countries to behave responsibly, not that there ever will be one but I think if every country had to have a unified spending policy you wont see the massive waste of money that happens in greece.

 

But the real question is, does Europe want to be the United States of Europe? My guess is no and the only real solution in that case is to cut off the pig nations and cut their loses

You might have misunderstood me, bailing out Greece is basically socialism. Since it isn't working for them right now, they'll have to do something different, like you said.

[magekillr]

For the Euro to survive they either need to become the United States of Europe with a unified spending policy or kick out the pig nations and cut their losses

Because socialism doesn't work between countries, right? :grin:

 

This would be the opposite of that. A unified spending policy would mean that Germany can object to Greeces paying employees for 14 months in a year. Etc.

 

Federalist systems are not socialistic. The problem with the Euro as is is that there is no incentive for countries to behave responsibly, not that there ever will be one but I think if every country had to have a unified spending policy you wont see the massive waste of money that happens in greece.

 

But the real question is, does Europe want to be the United States of Europe? My guess is no and the only real solution in that case is to cut off the pig nations and cut their loses

 

I wouldn't say that's the problem with the Euro. The problem with the Euro is that the countries have very different economies, and it's acting as a gold standard for countries like Greece, Spain, Italy, etc. For example, Spain and Ireland were very responsible with their debt and deficits (they were running surpluses before the housing bubble burst). Now maybe they weren't very responsible as far as their banking and housing policy (I read somewhere that a lot of Germans inflated a large portion of Spain's housing bubble).The only real culprit here as far as fiscal irresponsibility is Greece, they are the problem child. The thing is, they cheated to get admitted in the first place; they shouldn't even have been allowed. Meanwhile they refuse to admit Turkey. It makes no sense (well it does when you factor in the racism, but let's not go there).

 

But your prescriptions to the problem are correct: either make the economies more integrated, or cut Greece off. I think it'd be better for Greece to be kicked out.

 

Basically, I agree with Nouriel Roubini (and have ever since they first said Greece should impose austerity on itself):

 

The first of these options, a sharp weakening of the euro, is unlikely while the US is economically weak and Germany über-competitive. A rapid reduction in unit labour costs, through structural reforms that increased productivity growth in excess of wages, is just as unlikely. Germany took 10 years to restore its competitiveness this way; Greece cannot wait in depression for a decade.

 

The third option is a rapid deflation in prices and wages, known as an “internal devaluation”. But this would lead to five years of ever-deepening depression, while making public debts more unsustainable.

 

Logically, therefore, if those three options are not possible, the only path left is to leave the eurozone. A return to a national currency and a sharp depreciation would quickly restore competitiveness and growth, as it did in Argentina and many other emerging markets that abandoned their currency pegs.

Greece should default and abandon the euro

 

edit: no, bailing Greece out does not amount to "socialism." That's like saying the Federal Reserve amounts to socialism.

[magekillr]

I'm not sure how much stock one should put into Ron Suskind's new book, but he is a good reporter. In any case, here are some things we learn about the President and his advisers:

 

* Obama wanted to put CitiGroup into resolution, but Rahm Emmanuel and Tim Geithner ignored his wishes.

* Obama is a conservative and believes that unemployment is due to the Technology Fairy and structural causes. He's also a True Believer for deficit reduction.

* Obama was concerned about Treasuries where "no one would show up to buy T-bills." So he was worried about a crisis that never was: Bond Vigilantes.

 

If most of this is true, the US is in deep [cabbage]. And by US, I mean most people who need a job.

[magekillr]

edit: no, bailing Greece out does not amount to "socialism." That's like saying the Federal Reserve amounts to socialism.

 

Dont quote me on this (well go ahead Im posting here) but im pretty sure if I know Sees_All's posts he would say that is socialism. I could be wrong now xD

 

Heh XD

 

Oh and look, austerity is failing in the UK (what else is new?). Apparently cutting spending in the midst of a recession can lead to higher deficits anyway. NO ONE COULD HAVE PREDICTED!!!

 

UK Treasury says govt spending still on track

The Office for National Statistics said public sector net borrowing excluding financial interventions rose to 15.934 billion pounds in August from 14.003 billion pounds a year ago, above analysts' forecasts for a reading of 13.2 billion pounds.

 

Including financial interventions, public sector net borrowing also rose last month to 13.161 billion pounds from 11.852 billion pounds in August 2010, above economists' average forecast in a Reuters poll of 11.25 billion pounds.

 

Ben Bernanke is looking for different options for the Federal Reserve to take:

 

ch.com/story/getting-ready-for-a-twist-by-the-federal-reserve-2011-09-19"]Getting ready for a twist by the Federal Reserve Novel or not, central bank may go back to 1960s era policy

The expectation now is that the Fed will sell debt maturing in three years or less and buy mostly 7-year to 10-year notes. In the bond market, expectations are for the program to range in size from about $200 billion to $700 billion. Read How much in bonds will the Fed buy?

 

The program is designed to lower longer-term rates. This could help mortgage holders refinance and lower the costs of borrowing. Moran noted that Federal Reserve Chairman Ben Bernanke believes $200 billion of asset purchases is the equivalent of a reduction of 25 basis points in the Federal funds rate. The Fed can no longer reduce interest rates to bolster the economy, because rates already are close to zero.

 

Startled by persistent economic weakness, the Fed moved quickly in August to assure financial markets that it would do whatever was necessary to keep the recovery alive. The central bank surprised markets by taking the unprecedented step to alert markets that the Feds own forecast showed that the central bank would keep interest rates near zero until mid-2013.

 

Officials also decided to take on another day to their Sept. 20 meeting to review the costs and benefits of another stimulus.

[magekillr]

IMF warns of threat to global banking system

The International Monetary Fund has warned that the global financial system is more vulnerable now than at any time since the 2008 financial crisis.

 

Some European banks are particularly weak and urgently need to bolster their capital levels, the IMF said in its Global Financial Stability Report.

 

It said time is running out to tackle vulnerabilities that threaten the banking system and economic recovery.

 

David Dayen at FDL comments:

 

New IMF head Christine Lagarde has said that European banks were in urgent need of recapitalization. But look at the numbers were talking about. The IMF estimates in their report that the Eurozone debt crisis has cost EU banks a whopping 200 billion euros, or $273 billion, in just over the last two years. This is why the IMF is saying that banks cannot recapitalize on their own, and must use the European Financial Stability Facility intended for indebted countries for their own banks. The EFSF as TARP, then. But the potential losses beyond the $273 billion lost already total another $400 billion. There doesnt seem to be any end to this exposure. Most of the capital held by banks would be wiped out by these losses. And European nations attempting a bailout of this size in the midst of their own debt crisis sounds impossible.

 

The real meat of this is in this PDF beginning on page 16. Heres a representative quote: Nearly half of the 6.5 trillion stock of government debt issued by euro area governments is showing signs of heightened credit risk. And this isnt just Europe: the contagion could move to other parts of the world, particularly other banks. And as banks tighten up, the effects on economies are obvious. Ill just add one more quote: Restoring confidence in the stability of the US housing market is the key to bolstering the prospects for US banks. Good luck with that.

 

The Moodys downgrades of US banks yesterday were based on the notion that there is no appetite for another bailout of the financial sector. We may have a test of that proposition soon.

[magekillr]

Walter Russell Mead (a center-right person) asks whether we should panic:

 

Panic?

This is not just about how big the deficit should be; it is about whether the international financial system will survive the next six months in the form we now know it. It is about whether the foundations of the postwar order are cracking in Europe. It is about whether a global financial crash will further destabilize the Middle East and, if so, what we and the Europeans are going to do about it. It is about whether the incipient signs of a bubble burst in China signal the start of an extended economic and perhaps even political crisis there. It is about whether the American middle class is about to be knocked off its feet once again and indeed whether the middle class as weve known it will survive. It is about whether sovereign governments can still underwrite economic performance and financial stability in the leading economies of the world.

 

I still hope the old house can weather one more storm, but it is clear that we can no longer take that for granted. The ground under the foundations is washing away; the wind threatens to rip off the roof, and cracks are appearing in load bearing walls. Sooner rather than later we are going to have redesign and rebuild.

[magekillr]

Been making the rounds overnight:

 

http://www.youtube.com/watch?v=aC19fEqR5bA&feature=player_embedded

[obfuscator]

Been making the rounds overnight:

 

http://www.youtube.com/watch?v=aC19fEqR5bA&feature=player_embedded

Related: http://www.thestar.com/business/article/1060245--video-stock-trader-who-dreams-of-another-recession-revealed?bn=1

 

When stock trader Alessio Rastani proclaimed to the world The stock market is finished and I go to bed every night and dream about another recession, jaws dropped and tweets flew.

 

Then came speculation that Rastani was part of an Internet group of pranksters and that the British television network had been tricked.

 

Instead, he turned out to be an attention-seeking hobbyist who doesnt own the home he lives in.

 

But what he told incredulous news anchors cut the heart of fears that the economy cant be fixed, plummeting stock markets that ruin average investors are a boon to professional traders, and investment firms run the world.

 

Rastanis interview as a financial expert on the BBC News channel Monday began when he was asked about the latest rescue plan for the euro.

 

He started by saying that the stock market is finished, and the conversation veered wildly off-course from there.

 

Im a trader. If I see an opportunity to make money I go with that. We dont care about how theyre going to fix the economy, he said. I go to bed every night, I dream about another recession.

 

The shocked anchor told him that jaws have collectively dropped at his comments.

 

We appreciate your candor, Martine Croxall added, however, it doesnt help the rest of us, does it?

 

 

Then came this gem: The governments dont rule the world. Goldman Sachs rules the world.

 

Rastani ended with this: My prediction is that in 12 months the savings of millions of people is going to vanish, and this is just the beginning. Be prepared and act now.

 

Rastani bills himself on his website and Twitter account as an experienced stock market and forex trader and professional speaker.

 

Skeptics took to Twitter with allegations that Rastani is a member of the Yes Men, a band of hoaxters who pass themselves off as corporate spokesmen telling us what we want to hear.

 

The BBC said Tuesday an internal investigation found that Rastani is not part of a hoax, but the network still faces uncomfortable questions about how he was selected for the interview.

 

He has never been registered with the countrys financial regulator, the Financial Services Authority, nor has he worked for a City institution, Londons equivalent of Wall Street.

 

Rastani when faced questions from Forbes.com and the Telegraph, eagerly explained that the BBC approached him.

 

Im an attention seeker, he told the Telegraph. Trading is like a hobby. It is not a business. I am a talker. I talk a lot.

 

Rastani lives and works in a semi-detached home in south London that belongs to his girlfriend, according to the Telegraph.

 

And then theres the feeling you get when you realize your expert financial whiz day trades in his underwear from home, read one tweet.

 

How qualified Alessio Rastani is to speak on the economic crisis doesnt really matter. The fact is hes spot on about it, read another.

[Tim]

Sounds more like a blow-hard helping CAUSE one. I for one do not want another global meltdown to happen, Newcastle is STILL trying to recover job-wise. If we got another, Newcastle would easily be permanently damaged beyond repair. (financial wise...and probably physical from riots or something)

[magekillr]

Matt Yglesias has a nice Q/A (he's not an economist, but in my opinion he understands the issues quite well):

 

Why does Greece need a bailout?

 

This is pretty simple. The Greek budget is way out of whack and Greece cant repay what it owes.

 

Why dont the other Euro countries just let Greece default?

 

The concern is that if one Euro country defaults, this will increase the perceived riskiness of all European countries. The higher interest rates will be bad for everyone, but in particular could push countries like Ireland, Portugal, Spain, and Italy into default.

 

Well so what?

 

That many defaults would call other countries (Belgium, even France) into question. Whats more, the losses to banks would be enormous. Countries would then either need to choose between witnessing massive bank failures, or else engaging in bank bailouts much larger than the cost of just bailing Greece out.

 

Is this all caused by high taxes and socialism?

 

No. Swedens not on the Euro and theyre fine, notwithstanding high taxes. Even within the Eurozone, relatively high tax countries such as Finland and Austria are doing okay on their own terms.

 

How did the PIGS get into this mess in the first place?

 

Different reasons. Greece engaged in a lot of budget funny-business. Spain and Ireland had big property bubbles. I dont know anything about Portugal.

 

More slowly isnt this all about irresponsible government spending?

 

In Greece, thats a huge part of the story. In Spain and Ireland its really not. Much like the United States, both of those countries had massive private borrowing during the boom years, much of it to finance real estate development. Explanations for why exactly this happened in the USA vary, but it was all one big global phenomenon. Not only did this directly employ a lot of people, it had the secondary consequence of pushing wage levels up across the board. Then demand collapsed, leaving many Irish and Spanish indebted and unemployed while overall wage levels were fundamentally uncompetitive with Germany. The collapse in overall economic activity has created plunging revenues and budget crises.

 

Why cant they solve this?

Many reasons, but first and foremost an extremely clunky decision-making mechanism. Big decisions in Europe need to be made by unanimous vote of all 27 EU members, even those that arent part of the euro. The constituent countries have different interests, are in different situations, and also have different governing coalitions. An idea needs to be acceptable to Spanish socialists and German conservatives and everyone in between. Thats simply hard to do.

 

What should be done?

 

At this point really anything. There are several different options that could work. The Eurozone could break up and banks could eat default losses. The Eurozone could break up and the stronger countries could bail out their banks. The Eurozone countries could embrace fiscal transfers. The European Central Bank could promise massive monetary stimulus in exchange for continent-wide austerity. The problem is that all workable options involve allocating losses to someone or other. Nobody wants the loss allocated to them, and since the decision-making process is so clunky its easy to block everything. Each time the can gets kicked down the road, it tends to expose the extent to which the decision-making process wont lead to a big bang workable solution and everyone gets more nervous.

 

Can you end with a joke?

 

One possible idea would be for Greece, Spain, and Italy to all default on their debts followed by a German effort to conquer those countries in order to recoup losses. Then the United States would need to go to war to stave off German domination of Europe which, as we know from the 1940-45 experience, would stimulate the U.S. economy.

[i_love_burritos]

Independent trader, seems to have his own agenda and wants to sell something. Not that what he said is necessarily untrue.

 

"Here comes the flood, hop into my ark, you'll be saved if you follow my instructions."

 

Of course people selling futures would look to see where the peaks and dips are - they make money that way, they blindly follow whatever direction the market takes, volatility fuels speculation, the market moves very quickly, of course someone on that level is going to use that to make money.

 

-The clown is right when he says the whole Eurozone looks like it's in shambles.

 

edit: the guy seems to be a douche, irrespective of whether he's "correct" or not.

[magekillr]

Heh, this article brings me smiles:

 

Their complaints range from corruption to lack of affordable housing and joblessness, common grievances the world over. But from South Asia to the heartland of Europe and now even to Wall Street, these protesters share something else: wariness, even contempt, toward traditional politicians and the democratic political process they preside over.

 

They are taking to the streets, in part, because they have little faith in the ballot box.

 

Our parents are grateful because theyre voting, said Marta Solanas, 27, referring to older Spaniards decades spent under the Franco dictatorship. Were the first generation to say that voting is worthless.

 

Economics have been one driving force, with growing income inequality, high unemployment and recession-driven cuts in social spending breeding widespread malaise. Alienation runs especially deep in Europe, with boycotts and strikes that, in London and Athens, erupted into violence.

 

Increasingly, citizens of all ages, but particularly the young, are rejecting conventional structures like parties and trade unions in favor of a less hierarchical, more participatory system modeled in many ways on the culture of the Web.

 

In that sense, the protest movements in democracies are not altogether unlike those that have rocked authoritarian governments this year, toppling longtime leaders in Tunisia, Egypt and Libya. Protesters have created their own political space online that is chilly, sometimes openly hostile, toward traditional institutions of the elite.

 

The critical mass of wiki and mapping tools, video and social networking sites, the communal news wire of Twitter and the ease of donations afforded by sites like PayPal makes coalitions of like-minded individuals instantly viable.

 

Youre looking at a generation of 20- and 30-year-olds who are used to self-organizing, said Yochai Benkler, a director of the Berkman Center for Internet and Society at Harvard University. They believe life can be more participatory, more decentralized, less dependent on the traditional models of organization, either in the state or the big company. Those were the dominant ways of doing things in the industrial economy, and they arent anymore.

 

Yonatan Levi, 26, called the tent cities that sprang up in Israel a beautiful anarchy. There were leaderless discussion circles like Internet chat rooms, governed, he said, by emoticon hand gestures like crossed forearms to signal disagreement with the latest speaker, hands held up and wiggling in the air for agreement the same hand signs used in public assemblies in Spain. There were free lessons and food, based on the Internet conviction that everything should be available without charge.

 

Someone had to step in, Mr. Levi said, because the political system has abandoned its citizens.

 

The rising disillusionment comes 20 years after what was celebrated as democratic capitalisms final victory over communism and dictatorship.

 

In the wake of the Soviet Unions collapse in 1991, a consensus emerged that liberal economics combined with democratic institutions represented the only path forward. That consensus, championed by scholars like Francis Fukuyama in his book The End of History and the Last Man, has been shaken if not broken by a seemingly endless succession of crises the Asian financial collapse of 1997, the Internet bubble that burst in 2000, the subprime crisis of 2007-8 and the continuing European and American debt crisis and the seeming inability of policy makers to deal with them or cushion their people from the shocks.

 

Frustrated voters are not agitating for a dictator to take over. But they say they do not know where to turn at a time when political choices of the cold war era seem hollow. Even when capitalism fell into its worst crisis since the 1920s there was no viable alternative vision, said the British left-wing author Owen Jones.

 

Read on: As Scorn for Vote Grows, Protests Surge Around Globe

[magekillr]

ECB to Europe: drop dead:

 

The European Central Bank offered new emergency loans to banks on Thursday to help them through the turmoil of the government debt crisis, but decided to keep interest rates on hold despite fears of an economic slowdown.

 

President Jean-Claude Trichet did not even indicate that a rate cut was due in coming months, as many experts predicted would be necessary to stave off a possible new recession. The hesitation is likely to expose the bank to more calls from worried businesses to change course.

European Central Bank offers new emergency loans to banks, leaves rates unchanged

 

ECB: "We tightened money a few months ago, growth sucked and made the debt crisis horrible in Spain and Italy, and as a result the entire EU might go into recession. Rather than admit we were wrong and reverse course, we're going to continue with the current policies!"