Friday, November 26, 2010

Let's Try Some Perspective

The drumbeat against the euro is increasing daily.  It will fall apart, it will be limited to a hard core of Northern countries, it was a bad idea to begin with, you can't have uniform monetary policy without uniform fiscal policy, etc etc. The cacophony is so loud it is making common sense impossible to break through, particularly since "the free market" is screaming at the top of its lungs.

Let's try some perspective on that "free market", eh?  
  • Gross Folly #1: How come the eurozone's financial center is... London?!!  What this means in practical terms is that a scrum of bottom-line-is-everything bonus-hungry twenty-somethings hardly out of school are running the show.  And to top it off, they and their country (the U.K.) are not even members of the eurozone. They don't use it, they don't believe in it and, if anything, they hate its guts.  Literally.  This like trusting a bunch of juvenile delinquents who amuse themselves with setting cats on fire to run the pet shelter. 

  • Gross Folly #2:  We let those same kids deal in sovereign bond CDS (credit default swaps) in an unlimited amount, without any regulation, in a completely opaque OTC market.  They don't have to hedge their positions with the underlying sovereign bonds, they don't have to account for their actions to anyone but their immediate boss - who is also in line to make a huge bonus from their profit - and they don't give a damn if they push some poor country into bankruptcy and its people into starvation.  Literally.  This is like giving the nuclear missile launch keys to a bunch of manic-depressives and telling them they have to compete amongst themselves for their meds.
  •  Gross Folly #3: We have allowed huge amounts of public and private pension monies to be managed by "alternative-investment" firms, e.g. hedge funds who are compensated on the outrageous 2/20 schedule.  (The US Social Security is still OK, as it can only invest in Treasurys, but it came close to succumbing a few years ago.)  This is like giving a bunch of convicted arsonists a tank-farm full of gasoline, asking them to put it to profitable use.
  • Gross Folly #4:   The people of Europe have entrusted management of the whole shebang to politicians, their appointees and committees of clueless bureaucratic mandarins who wouldn't know the difference between a CDS and a CDO if it sat up and hit them in the face. (Again, the US is somewhat better at this since key government positions are frequently filled by experienced financiers.)  This is like staffing Bedlam with a bunch of  South Italian city managers, soviet-era Russian chefs from Vladivostock and over-sized German nurses named Helga.  All overseen by the ghost of Joe McCarthy come back to life.  No doctors.  Oh, and only Wagner allowed in the rec room.
Have a nice weekend...

PS  A friend in the business sent me this picture today.  While I may not exactly agree with it, it is definitely indicative of sentiment towards Germany these days...

European Family Photo


  1. All well and good. Please note the special trust fund bonds, or whatever they're called, created by matching rate to need, the US Treasure 'sells' to the SSA. Totally bogus calls on cash flow, but hey - it's 'safe'.

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