TheMoneyIllusion
Consider the following:
Banks pour huge amounts of money into one particular asset class. They are encouraged to do this by public policymakers, although there is some dispute about whether that was the main reason for their decisions. These assets have a long tradition of doing well, although a close look at the evidence would have raised red flags. The asset market in question suddenly takes a big dive as default risk increases sharply. This drags down many large banks, forcing policymakers to provide assistance.
What have I just described? The sub-prime fiasco or the PIGS sovereign debt fiasco? I’d say both. I’d say these two crises are essentially identical...
Of course the sub-prime crisis came first, so let’s consider the dominant (progressive) narrative of the sub-prime crisis. If you read the mainstream media you will see it described as a sort of morality play; the evils of deregulation, which allowed the greedy big banks to take highly leveraged gambles with other people’s money, and then off-load the risk on to both taxpayers and unsuspecting buyers of MBSs. Or something like that.
Obviously it would be impossible to tell a similar story for the sovereign debt crisis. No regulator in his right mind would ever contemplate telling big banks not to buy European sovereign debt because it’s too risky. Indeed the previous attempt at regulation (Basel II) encouraged banks to put funds into those “safe investments.” Blaming the euro crisis on deregulation doesn’t even pass the laugh test. The criminals were the regulators themselves. Is the term ‘criminal’ hyperbole on my part? Not at all. Suppose Enron executives had used the same accounting techniques as the Greek government. They’d all be in jail.
...
2011/11/21
Niall Ferguson on 2021: The New Europe - WSJ.com
Niall Ferguson on 2021: The New Europe - WSJ.com
Welcome to Europe, 2021. Ten years have elapsed since the great crisis of 2010-11, which claimed the scalps of no fewer than 10 governments, including Spain and France. Some things have stayed the same, but a lot has changed...
...
Looking back on the previous 10 years, Mr. von Habsburg—still known to close associates by his royal title of Archduke Karl of Austria—could justly feel proud. Not only had the euro survived. Somehow, just a century after his grandfather's deposition, the Habsburg Empire had reconstituted itself as the United States of Europe.
Small wonder the British and the Scandinavians preferred to call it the Wholly German Empire.
Welcome to Europe, 2021. Ten years have elapsed since the great crisis of 2010-11, which claimed the scalps of no fewer than 10 governments, including Spain and France. Some things have stayed the same, but a lot has changed...
...
Looking back on the previous 10 years, Mr. von Habsburg—still known to close associates by his royal title of Archduke Karl of Austria—could justly feel proud. Not only had the euro survived. Somehow, just a century after his grandfather's deposition, the Habsburg Empire had reconstituted itself as the United States of Europe.
Small wonder the British and the Scandinavians preferred to call it the Wholly German Empire.
Johnson: Deutsche Bank Could Transfer Contagion - Bloomberg
Johnson: Deutsche Bank Could Transfer Contagion - Bloomberg
You’ve probably never heard of Taunus Corp., but according to the Federal Reserve, it’s the U.S.’s eighth-largest bank holding company. Taunus, it turns out, is the North American subsidiary of Germany’s Deutsche Bank AG (DBK), with assets of just over $380 billion...
Globally, Deutsche’s capital ratios are relatively healthy, judging by the banking industry’s standard measures. At the end of the third quarter, its Tier 1 capital ratio was 13.8 percent (up from 12.3 percent at the end of 2010) and its core Tier 1, which excludes hybrid debt that can convert into equity, was 10.1 percent.
How does such a highly leveraged bank become “well- capitalized”? The answer is that “risk-weighted assets” were 337.6 billion euros as of Sept. 30. But what is a low risk- weight asset in the European context today? Incredibly, it is sovereign debt, which of course is far from riskless at the moment. Perhaps Deutsche Bank holds mostly German government debt, which still has safe-haven value. But it’s likely that Deutsche also holds a significant amount of Italian and French government bonds.
Still, the bigger risks are probably in the U.S. Deutsche Bank is a significant trustee for mortgages, having been heavily involved in the issuance and distribution of mortgage-backed securities during the housing bubble. Yves Smith, writing on the nakedcapitalism.com blog, says Deutsche Bank is one of the U.S.’s four biggest securitization trustees.
Taunus Corp., named after a range of mountains outside the parent bank’s Frankfurt headquarters. The latest figures (from the Fed data, using the consolidated financial statement at the end of the third quarter) show Taunus with total equity capital of just $4.876 billion. This implies an eye-popping leverage ratio of around 78...
You’ve probably never heard of Taunus Corp., but according to the Federal Reserve, it’s the U.S.’s eighth-largest bank holding company. Taunus, it turns out, is the North American subsidiary of Germany’s Deutsche Bank AG (DBK), with assets of just over $380 billion...
Globally, Deutsche’s capital ratios are relatively healthy, judging by the banking industry’s standard measures. At the end of the third quarter, its Tier 1 capital ratio was 13.8 percent (up from 12.3 percent at the end of 2010) and its core Tier 1, which excludes hybrid debt that can convert into equity, was 10.1 percent.
How does such a highly leveraged bank become “well- capitalized”? The answer is that “risk-weighted assets” were 337.6 billion euros as of Sept. 30. But what is a low risk- weight asset in the European context today? Incredibly, it is sovereign debt, which of course is far from riskless at the moment. Perhaps Deutsche Bank holds mostly German government debt, which still has safe-haven value. But it’s likely that Deutsche also holds a significant amount of Italian and French government bonds.
Still, the bigger risks are probably in the U.S. Deutsche Bank is a significant trustee for mortgages, having been heavily involved in the issuance and distribution of mortgage-backed securities during the housing bubble. Yves Smith, writing on the nakedcapitalism.com blog, says Deutsche Bank is one of the U.S.’s four biggest securitization trustees.
Taunus Corp., named after a range of mountains outside the parent bank’s Frankfurt headquarters. The latest figures (from the Fed data, using the consolidated financial statement at the end of the third quarter) show Taunus with total equity capital of just $4.876 billion. This implies an eye-popping leverage ratio of around 78...
2011/11/17
Europe must not allow Rome to burn - FT.com
By Martin Wolf
Europe must not allow Rome to burn - FT.com:
What is at stake today is not only the stability of the European – perhaps the world’s – economy, but the survival of the most successful – and certainly most civilised – effort to unite Europe since the fall of the western Roman empire 1,535 years ago. As Walter Scheidel of Stanford University notes in a fascinating essay: “Two thousand years ago, perhaps half of the entire species had come under the control of just two powers, the Roman and Han empires.”* Both collapsed. But the Chinese empire was repeatedly restored and enlarged, while the Roman empire divided irretrievably. Yet the dream of reunification never died. It was apparent in the claims of popes and “holy Roman emperors”. It was carried by Napoleon’s eagles. It is the aspiration embedded in the European Union.
So, when Germany’s Angela Merkel, chancellor of Europe’s most powerful state, calls “for Europe to build a ‘political union’ to underpin the euro and help the continent emerge from its ‘toughest hour since the second world war’” I take her seriously. I have little doubt, too, that the majority of the German business and political elite believes that the survival of the euro and of a united Europe is in the country’s interest. The question is whether they are prepared to pay the price.
In the centuries after the fall of Rome, Europe became Babel. Uniting such diversity is a daunting challenge. Politics are local, not European, as are the politicians. This might not matter if decisions taken at the European level were of little import. But monetary and fiscal policies or labour market regulation are at the core of democratic politics. The greater the economic divergence within the eurozone, the greater the stresses. Unfortunately, divergences in competitiveness, before the crisis, and in the price of credit, after it, have been extreme (see charts).
This, then, is where the postwar European project itself has arrived. On its fate hangs the European economy, the global banking system and perhaps the world economy.
My interpretation of the actions of chancellor Merkel is that “just enough, just in time” is itself the strategy...
Just enough, just in time has been too little too late. What was once a crisis in small peripheral countries has become a conflagration. Spreads on sovereign credit have reached the stratosphere (see charts). Worse, sovereign spreads now include some risk of a break-up...
...The time for too little too late has passed. What is needed, instead, is “too much, right now”. Power brings responsibility. Germany alone has the power. It is up to it to exercise the responsibility.
Europe must not allow Rome to burn - FT.com:
What is at stake today is not only the stability of the European – perhaps the world’s – economy, but the survival of the most successful – and certainly most civilised – effort to unite Europe since the fall of the western Roman empire 1,535 years ago. As Walter Scheidel of Stanford University notes in a fascinating essay: “Two thousand years ago, perhaps half of the entire species had come under the control of just two powers, the Roman and Han empires.”* Both collapsed. But the Chinese empire was repeatedly restored and enlarged, while the Roman empire divided irretrievably. Yet the dream of reunification never died. It was apparent in the claims of popes and “holy Roman emperors”. It was carried by Napoleon’s eagles. It is the aspiration embedded in the European Union.
So, when Germany’s Angela Merkel, chancellor of Europe’s most powerful state, calls “for Europe to build a ‘political union’ to underpin the euro and help the continent emerge from its ‘toughest hour since the second world war’” I take her seriously. I have little doubt, too, that the majority of the German business and political elite believes that the survival of the euro and of a united Europe is in the country’s interest. The question is whether they are prepared to pay the price.
In the centuries after the fall of Rome, Europe became Babel. Uniting such diversity is a daunting challenge. Politics are local, not European, as are the politicians. This might not matter if decisions taken at the European level were of little import. But monetary and fiscal policies or labour market regulation are at the core of democratic politics. The greater the economic divergence within the eurozone, the greater the stresses. Unfortunately, divergences in competitiveness, before the crisis, and in the price of credit, after it, have been extreme (see charts).
This, then, is where the postwar European project itself has arrived. On its fate hangs the European economy, the global banking system and perhaps the world economy.
My interpretation of the actions of chancellor Merkel is that “just enough, just in time” is itself the strategy...
Just enough, just in time has been too little too late. What was once a crisis in small peripheral countries has become a conflagration. Spreads on sovereign credit have reached the stratosphere (see charts). Worse, sovereign spreads now include some risk of a break-up...
...The time for too little too late has passed. What is needed, instead, is “too much, right now”. Power brings responsibility. Germany alone has the power. It is up to it to exercise the responsibility.
2011/11/16
Jobs schemed Apple WiFi carrier plot for original iPhone - SlashGear
Jobs schemed Apple WiFi carrier plot for original iPhone - SlashGear
Steve Jobs explored establishing Apple as a WiFi-based carrier rival, wireless expert John Stanton has confirmed, aiming “to replace carriers” in the run-up to the launch of the original iPhone in 2007.
... Rumored plans to use an embedded SIM in future iPhone models, that would allow Apple to directly activate the smartphone for consumers and then switch them between networks with little to no contact with the actual carriers themselves were supposedly junked after operators revolted. Apple execs “have been sent back to the drawing board with their tails between their legs” shttp://www2.blogger.com/img/blank.gifources close to negotiations claimed, with the threat of subsidies being removed forcing them to reconsider.
Nonetheless, Apple’s iPhone arguably led the way in pushing data-centric services, a pattern which has been continued by Android, Windows Phone and other platforms. Carriers have responded with 4G network investment and many offer bundled WiFi hotspot access to try to offload traffic from their spectrum, though it’s a far cry from Apple’s own plans of eschewing cellular in favor of WiFi altogether.
More about this:
http://www.pcmag.com/article2/0,2817,2396482,00.asp#fbid=FeeO8Of-CjN
Steve Jobs explored establishing Apple as a WiFi-based carrier rival, wireless expert John Stanton has confirmed, aiming “to replace carriers” in the run-up to the launch of the original iPhone in 2007.
... Rumored plans to use an embedded SIM in future iPhone models, that would allow Apple to directly activate the smartphone for consumers and then switch them between networks with little to no contact with the actual carriers themselves were supposedly junked after operators revolted. Apple execs “have been sent back to the drawing board with their tails between their legs” shttp://www2.blogger.com/img/blank.gifources close to negotiations claimed, with the threat of subsidies being removed forcing them to reconsider.
Nonetheless, Apple’s iPhone arguably led the way in pushing data-centric services, a pattern which has been continued by Android, Windows Phone and other platforms. Carriers have responded with 4G network investment and many offer bundled WiFi hotspot access to try to offload traffic from their spectrum, though it’s a far cry from Apple’s own plans of eschewing cellular in favor of WiFi altogether.
More about this:
http://www.pcmag.com/article2/0,2817,2396482,00.asp#fbid=FeeO8Of-CjN
2011/11/14
FT Alphaville » Eurozone, why did we bother
FT Alphaville » Eurozone, why did we bother
Posted by Izabella Kaminska on Nov 14 11:15.
When you look at Eurozone bond spreads on a historical basis… you have to wonder:
Posted by Izabella Kaminska on Nov 14 11:15.
When you look at Eurozone bond spreads on a historical basis… you have to wonder:
Uma gordura chamada função pública « BLASFÉMIAS
Uma gordura chamada função pública « BLASFÉMIAS
...
Em suma, muita da contestação ao OE2012 tem a ver com as dores do sector não transaccionável por quem a crise até à data tinha passado ao lado, mas que agora foi atingido em cheio por ela. Todo o modelo concentracionário vigente no país desde sempre, agravado por um modelo económico que privilegiou os bens não transaccionáveis, potencia estes desequilíbrio regionais: em períodos de expansão o núcleo central beneficia e distancia-se do resto do país, em períodos recessivos e mantendo-se o modelo económico, tem maior imunidade à crise e continua a divergir. Não é por acaso que, desde a nossa integração na Europa, assistimos a um constante e persistente acentuar das desigualdades entre Lisboa e o resto do País. Independentemente de existir ou não convergência com a UE, a nível interno a divergência Lisboa / resto do país foi a regra.
Uma alteração do paradigma económico como este governo pretende efectuar (fundamentalmente por imposição externa, reconheça-se), irá naturalmente penalizar os beneficiários com o antigo modelo. Cavaco, um centralista militante e empedernido de agora e de sempre e, em grande medida, o “pai” do modelo que nos desgraçou, já antecipou estes efeitos. Ele e outros membros da “Corte”, quando denunciam a “falta de equidade”, estão certamente a pensar numa óptica regional. E admito que o próprio governo também o terá feito, ao deixar intocada a rubrica “Aquisição de bens e serviços”, para evitar uma maior recessão em Lisboa. Estamos a falar de qualquer coisa como 12 mil milhões de euros dos quais, quase 9 mil milhões correspondem aos Serviços e Fundos Autónomos, quase todos sedeados em Lisboa. Naquela rubrica, há ”gorduras” que permitem um potencial de poupança da ordem dos 20 a 30%, sem que daí decorram quebras significativas nos serviços aos cidadãos. Não haverá cortes em 2012, mas serão inevitáveis em 2013.
...
...
Em suma, muita da contestação ao OE2012 tem a ver com as dores do sector não transaccionável por quem a crise até à data tinha passado ao lado, mas que agora foi atingido em cheio por ela. Todo o modelo concentracionário vigente no país desde sempre, agravado por um modelo económico que privilegiou os bens não transaccionáveis, potencia estes desequilíbrio regionais: em períodos de expansão o núcleo central beneficia e distancia-se do resto do país, em períodos recessivos e mantendo-se o modelo económico, tem maior imunidade à crise e continua a divergir. Não é por acaso que, desde a nossa integração na Europa, assistimos a um constante e persistente acentuar das desigualdades entre Lisboa e o resto do País. Independentemente de existir ou não convergência com a UE, a nível interno a divergência Lisboa / resto do país foi a regra.
Uma alteração do paradigma económico como este governo pretende efectuar (fundamentalmente por imposição externa, reconheça-se), irá naturalmente penalizar os beneficiários com o antigo modelo. Cavaco, um centralista militante e empedernido de agora e de sempre e, em grande medida, o “pai” do modelo que nos desgraçou, já antecipou estes efeitos. Ele e outros membros da “Corte”, quando denunciam a “falta de equidade”, estão certamente a pensar numa óptica regional. E admito que o próprio governo também o terá feito, ao deixar intocada a rubrica “Aquisição de bens e serviços”, para evitar uma maior recessão em Lisboa. Estamos a falar de qualquer coisa como 12 mil milhões de euros dos quais, quase 9 mil milhões correspondem aos Serviços e Fundos Autónomos, quase todos sedeados em Lisboa. Naquela rubrica, há ”gorduras” que permitem um potencial de poupança da ordem dos 20 a 30%, sem que daí decorram quebras significativas nos serviços aos cidadãos. Não haverá cortes em 2012, mas serão inevitáveis em 2013.
...
2011/11/10
Sweden’s Tough Love of Banks is World Model - Bloomberg
Sweden’s Tough Love of Banks is World Model - Bloomberg
Sweden’s bank rescue model has protected taxpayers, turned a profit and left the Nordic country less indebted than when the financial crisis started in 2007.
Sweden’s bank rescue model has protected taxpayers, turned a profit and left the Nordic country less indebted than when the financial crisis started in 2007.
2011/11/08
FT Alphaville » The eurozone crisis as balance of payment problem
FT Alphaville » The eurozone crisis as balance of payment problem
And even if the eurozone manages to muddle through, in the medium term, sustainable solutions to this vexing current account issue are hard to come by. Remember when Geithner last year floated the idea of current account targets between the US and China only for it to be shot down as unworkable in practice? Would it be easier to impose binding targets of such nature within the EMU? We are not quite sure. And would Germany ever argue that surpluses were a bad thing? A consensus on this is surely needed before anything can de done about it. Just ask John Maynard Keynes.
Okay, say we agree now that this is a current account crisis. What are the options?
1. Fiscal transfers from Germany to the deficit nations.
2. Internal Latvia-style deflation that would require the write-off of sizeable amounts of public and private debt.
3. “The Latin countries could exert their influence over the ECB to pursue a monetary policy that leads to higher inflation in the Germanic countries,” DB note.
...And even if the eurozone manages to muddle through, in the medium term, sustainable solutions to this vexing current account issue are hard to come by. Remember when Geithner last year floated the idea of current account targets between the US and China only for it to be shot down as unworkable in practice? Would it be easier to impose binding targets of such nature within the EMU? We are not quite sure. And would Germany ever argue that surpluses were a bad thing? A consensus on this is surely needed before anything can de done about it. Just ask John Maynard Keynes.
2011/11/07
Greg Mankiw's Blog: Race Against the Machine
Greg Mankiw's Blog: Race Against the Machine
MIT economist Erik Brynjolfsson emails me:
I agree with your recent blog post that "the timing suggests that the two trends--the increasing value of education and the rising share of the top 1 percent--may be related." But how are they related? I think the biggest single factor is the digital revolution, which is boosting the economy and benefitting you, me and Paul Krugman, while leaving many people behind. The median worker's skills and our institutions aren't keeping up with accelerating technological change.
I discuss this in my very short new ebook (about 20,000 words) with Andrew McAfee called "Race Against the Machine: How the Digital Revolution Accelerates Innovation, Drives Productivity and Irreversibly Transforms Employment and the Economy". In it, we seek to reconcile the fact that the 2000s has been the best decade since the 1960s for productivity growth, better than the roaring 1990s even.
MIT economist Erik Brynjolfsson emails me:
I agree with your recent blog post that "the timing suggests that the two trends--the increasing value of education and the rising share of the top 1 percent--may be related." But how are they related? I think the biggest single factor is the digital revolution, which is boosting the economy and benefitting you, me and Paul Krugman, while leaving many people behind. The median worker's skills and our institutions aren't keeping up with accelerating technological change.
I discuss this in my very short new ebook (about 20,000 words) with Andrew McAfee called "Race Against the Machine: How the Digital Revolution Accelerates Innovation, Drives Productivity and Irreversibly Transforms Employment and the Economy". In it, we seek to reconcile the fact that the 2000s has been the best decade since the 1960s for productivity growth, better than the roaring 1990s even.
2011/11/03
The ECB’s Risky Business - Daniel Gros - Project Syndicate
The ECB’s Risky Business - Daniel Gros - Project Syndicate: A common money and a common monetary policy cannot work properly with a banking system that is segmented along national lines. The most urgent step to stabilize the euro is not to follow the chimera of “euro economic government,” but to create the underpinnings of a truly integrated banking market with a common supervisor, a form of “federal” deposit insurance, and a “euro bank rescue fund” for the large cross-border institutions.
2011/11/02
Referendo grego – notas « BLASFÉMIAS
Referendo grego – notas « BLASFÉMIAS
1. É o triunfo da política sobre a economia: os gregos vão poder escolher a forma pela qual querem empobrecer.
2. Papandreou força o povo a escolher entre a fome e a peste. Há quem considere isto um grande momento do democracia. É apenas um sintoma de fracasso. A democracia grega foi sempre capaz de votar mais despesa. Quando os custos batem à porta não é capaz de votar cortes. O referendo serve para forçar o povo a encarar a realidade que ignorou durante tantos anos. Só isso.
3. No dia seguinte ao referendo a Grécia continuará falida. As despesas do Estado grego continuam acima das receitas, mesmo descontando os juros pagos aos credores. Se ganhar o “sim” voltamos ao mesmo, se ganhar o “não” os gregos vão empobrecer muito rapidamente.
4. Se ganhar o “não” a Grécia continuará a dever dinheiro a credores poderosos que usarão todos os meios legais e políticos para forçar a Grécia a pagar.
5. Qualquer risco de o “não” ganhar fará com que os agentes económicos gregos antecipem as consequências. Os bancos terão que fechar.
1. É o triunfo da política sobre a economia: os gregos vão poder escolher a forma pela qual querem empobrecer.
2. Papandreou força o povo a escolher entre a fome e a peste. Há quem considere isto um grande momento do democracia. É apenas um sintoma de fracasso. A democracia grega foi sempre capaz de votar mais despesa. Quando os custos batem à porta não é capaz de votar cortes. O referendo serve para forçar o povo a encarar a realidade que ignorou durante tantos anos. Só isso.
3. No dia seguinte ao referendo a Grécia continuará falida. As despesas do Estado grego continuam acima das receitas, mesmo descontando os juros pagos aos credores. Se ganhar o “sim” voltamos ao mesmo, se ganhar o “não” os gregos vão empobrecer muito rapidamente.
4. Se ganhar o “não” a Grécia continuará a dever dinheiro a credores poderosos que usarão todos os meios legais e políticos para forçar a Grécia a pagar.
5. Qualquer risco de o “não” ganhar fará com que os agentes económicos gregos antecipem as consequências. Os bancos terão que fechar.
Capitalism need not be about greed and gambling - FT.com
Capitalism need not be about greed and gambling - FT.com
By John Kay, November 1, 2011
Capitalism “should be replaced by something nicer”, one group of demonstrators demanded. The slogan encapsulates the incoherence of the protests at Wall Street and the City of London.
...
Many of those who preach the doctrine of free enterprise loudest have succeeded by skills more akin to those of backroom politicians than of entrepreneurs. Mobile phone networks grew rapidly because a fortunate interlude of deregulatory fervour wrested a monopoly from incumbent fixed line operators. The inventors of social networking sites resemble the occupiers of St Paul’s Churchyard tents more than the occupants of boardrooms. The besuited Winkelvoss twins, lobbying and litigating for a share of Mark Zuckerberg’s business, embody the deformed view of market economics which confuses business interests with free enterprise.
Perhaps the “something nicer” which should replace capitalism is a more nuanced – and more accurate – account of capitalism itself.
By John Kay, November 1, 2011
Capitalism “should be replaced by something nicer”, one group of demonstrators demanded. The slogan encapsulates the incoherence of the protests at Wall Street and the City of London.
...
Many of those who preach the doctrine of free enterprise loudest have succeeded by skills more akin to those of backroom politicians than of entrepreneurs. Mobile phone networks grew rapidly because a fortunate interlude of deregulatory fervour wrested a monopoly from incumbent fixed line operators. The inventors of social networking sites resemble the occupiers of St Paul’s Churchyard tents more than the occupants of boardrooms. The besuited Winkelvoss twins, lobbying and litigating for a share of Mark Zuckerberg’s business, embody the deformed view of market economics which confuses business interests with free enterprise.
Perhaps the “something nicer” which should replace capitalism is a more nuanced – and more accurate – account of capitalism itself.
2011/11/01
Creditors can huff but they need debtors
As Greece seems about to prove, debtors are able to inflict a great deal of damage on everybody
Financial Times, 7:28 PM Tuesday 1st November 2011
By Martin Wolf
...
Do creditors rule the world? Not really. In the short run, they can threaten to turn off the credit. But their surpluses depend on the willingness and ability of others to run deficits. It would be more sensible to admit that there has been too much borrowing by the profligate because there was too much lending by the supposedly prudent. Once it is understood that both are at fault, both must adjust. Imposing one-sided adjustment on erstwhile debtors will not work. As little Greece seems about to prove, debtors are able to inflict a great deal of damage on everybody – as the US discovered in the Great Depression. It would be a good idea to rediscover that reciprocal interest urgently, right now. Creditors do not sell to Mars. We are all on the same planet. Agree to fix its messes, right now.
Financial Times, 7:28 PM Tuesday 1st November 2011
By Martin Wolf
...
Do creditors rule the world? Not really. In the short run, they can threaten to turn off the credit. But their surpluses depend on the willingness and ability of others to run deficits. It would be more sensible to admit that there has been too much borrowing by the profligate because there was too much lending by the supposedly prudent. Once it is understood that both are at fault, both must adjust. Imposing one-sided adjustment on erstwhile debtors will not work. As little Greece seems about to prove, debtors are able to inflict a great deal of damage on everybody – as the US discovered in the Great Depression. It would be a good idea to rediscover that reciprocal interest urgently, right now. Creditors do not sell to Mars. We are all on the same planet. Agree to fix its messes, right now.
2011/10/30
Success or failure of EU summit hinges on Italy - FT.com
Success or failure of EU summit hinges on Italy - FT.com
Basking in the glory of the soaring euro and euphoric equities on Thursday, it was easy for European leaders to think they had finally done enough. Perhaps, just perhaps, investor confidence in the eurozone could be restored.
Reality returned with a bump on Friday when Italy was forced to pay more than 6 per cent to borrow money for 10 years – against less than 4 per cent a year ago.
...
After two years of vilifying credit default swaps, the derivatives have been adopted as one of the ways to “leverage” the European financial stability facility, the eurozone bail-out fund.
In addition to that, after governments (correctly) put part of the blame for the original 2007 crisis on structured finance, the EFSF is to set up a special purpose vehicle with two tranches to attract money from China and other sovereign wealth funds. Some of the richest countries in the world are using the model that got them into trouble in the first place to persuade some of the poorest countries in the world to help them recover.
...
Basking in the glory of the soaring euro and euphoric equities on Thursday, it was easy for European leaders to think they had finally done enough. Perhaps, just perhaps, investor confidence in the eurozone could be restored.
Reality returned with a bump on Friday when Italy was forced to pay more than 6 per cent to borrow money for 10 years – against less than 4 per cent a year ago.
...
After two years of vilifying credit default swaps, the derivatives have been adopted as one of the ways to “leverage” the European financial stability facility, the eurozone bail-out fund.
In addition to that, after governments (correctly) put part of the blame for the original 2007 crisis on structured finance, the EFSF is to set up a special purpose vehicle with two tranches to attract money from China and other sovereign wealth funds. Some of the richest countries in the world are using the model that got them into trouble in the first place to persuade some of the poorest countries in the world to help them recover.
...
2011/10/29
How historians will look back on Euroland’s demise - FT.com
How historians will look back on Euroland’s demise - FT.com
By Norman Davies
If Sparta and Rome perished”, asked Rousseau in his Social Contract, “how can any state hope to live for ever? The Body Politick, like the body of a man, begins to die as soon as it is born; it contains the seeds of its own destruction.”...
Most recently, the demise of Euroland came into view. It is not a sovereign state, but it is a body politick of sorts and subject to the same vagaries of fortune afflicting everything else. Launched only a dozen years ago, it may join the long list of organisations that have died young. It lacks viable organs of fiscal management and political governance; by general consent, it must reconstruct itself rapidly or break up. “The eurozone is doomed”, its critics argue. Britain’s Foreign Secretary describes it as “a burning building with no exits”. George Soros warns of possible “meltdown”...
By Norman Davies
If Sparta and Rome perished”, asked Rousseau in his Social Contract, “how can any state hope to live for ever? The Body Politick, like the body of a man, begins to die as soon as it is born; it contains the seeds of its own destruction.”...
Most recently, the demise of Euroland came into view. It is not a sovereign state, but it is a body politick of sorts and subject to the same vagaries of fortune afflicting everything else. Launched only a dozen years ago, it may join the long list of organisations that have died young. It lacks viable organs of fiscal management and political governance; by general consent, it must reconstruct itself rapidly or break up. “The eurozone is doomed”, its critics argue. Britain’s Foreign Secretary describes it as “a burning building with no exits”. George Soros warns of possible “meltdown”...
2011/10/28
The big questions raised by anti-capitalist protests - FT.com
The big questions raised by anti-capitalist protests - FT.com
...
The response to the crisis among those in the pro-market camp is much on the lines of the 1930s. On one side are those who blame what has gone wrong entirely on government. The Tea Party, in the US, has taken that position, with some success. In the UK, this strand is weaker. But there, too, some argue that the crisis is the result of Gordon Brown’s fiscal incontinence, over-regulated markets or incompetent central banks. In this, they follow the Austrian economists, Ludwig von Mises and Friedrich Hayek, in the 1930s. Against them are those who, following John Maynard Keynes, argue for a managed capitalism.
...
It is impossible to define an acceptable level of inequality. Any inequality is corrosive if those with wealth are believed to have rigged the game rather than won in honest competition. As inequality rises, the sense that we are equal as citizens weakens. In the end, democracy is sold to the highest bidder. That has happened often before in the history of republics. Peaceful protest is the right of free people. More important, it is a way to bring issues to our attention. The left does not know how to replace the market. But pro-marketeers still need to take the protests seriously. All is not well.
...
The response to the crisis among those in the pro-market camp is much on the lines of the 1930s. On one side are those who blame what has gone wrong entirely on government. The Tea Party, in the US, has taken that position, with some success. In the UK, this strand is weaker. But there, too, some argue that the crisis is the result of Gordon Brown’s fiscal incontinence, over-regulated markets or incompetent central banks. In this, they follow the Austrian economists, Ludwig von Mises and Friedrich Hayek, in the 1930s. Against them are those who, following John Maynard Keynes, argue for a managed capitalism.
...
It is impossible to define an acceptable level of inequality. Any inequality is corrosive if those with wealth are believed to have rigged the game rather than won in honest competition. As inequality rises, the sense that we are equal as citizens weakens. In the end, democracy is sold to the highest bidder. That has happened often before in the history of republics. Peaceful protest is the right of free people. More important, it is a way to bring issues to our attention. The left does not know how to replace the market. But pro-marketeers still need to take the protests seriously. All is not well.
2011/10/27
Why the mad migration of parts for your iPhone matters - FT.com
Why the mad migration of parts for your iPhone matters - FT.com:
...One should imagine, he said, drilling 300,000 holes into a grain of Japanese rice, flipping it over and then doing the same on the other side.The point is that it’s not easy to make sophisticated components. The barriers to entry are high. Specialisation means that, once manufacturing has gone to Asia, it is very hard for US or European manufacturers to claw back...
Many Asian manufacturers simply make components. But some that supply parts to their branded competitors aspire to inventing the next breakthrough device. It’s certainly not easy. But so long as Asian companies are making many of the components inside everything we use, even Apple cannot relax.
...One should imagine, he said, drilling 300,000 holes into a grain of Japanese rice, flipping it over and then doing the same on the other side.The point is that it’s not easy to make sophisticated components. The barriers to entry are high. Specialisation means that, once manufacturing has gone to Asia, it is very hard for US or European manufacturers to claw back...
Many Asian manufacturers simply make components. But some that supply parts to their branded competitors aspire to inventing the next breakthrough device. It’s certainly not easy. But so long as Asian companies are making many of the components inside everything we use, even Apple cannot relax.
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