Are people still worried?

Im not sure it could be described as a victory for the EU/ECB. Greece hasnt actually given up anything: austerity is required, default or no default. So passing of the austerity budgets are in the Greeks own interest, regardless of other concerns.

Meanwhile, the EU/ECB are committed to a new Greek bailout offering more funds at better interest rates, so they are wading further and further out into the minefield. Were Id the EU/ECB Id become more and more concerned as Greece came closer and closer to achieving a balanced budget as that would be a necessary precondition for making default a real option. The EU/ECB have shown that theyre terrified of a default and will offer almost any extension of terms to avoid dealing with reality.

This is bad, as we've essentially been playing for time since 2008, hoping the EU/ECB will evolve to a realistic solution that will address the real problems. To give them that time, we have essentially suspended our own decision making process and our own interests. However, here we are three years later and not much further advanced - strong public opposition, weak political leadership, and an ECB which freaks out whenever someone proposes a realistic solution. In fact things are a lot worse - the amount of debt has increased, and the EU/ECB are taking on more and more and more of it, which leads to greater public opposition. We may have to accept that the EU/ECB is not capable of providing a solution that is in our interests.

That leaves us with one rather scary alternative - that we will have to pursue our own interests, rather than presuming Trichet/Sarkzozy/Merkel will pursue our interests for us.

The EU need to decide weather to allow Greece(and us) to right off some of there loans.

Given that the Greeks owe most of their loans to the EU/ECB thats becoming an increasingly self defeating decision. At the start of the crisis, a default on the private banks could have been possible. The shareholders could have been wiped, the bondholders forced into debt for equity swaps and the government stepping in to make small despositors good and to secure the payments system. Crisis dealt with. The public could have been sold on the idea of evil capitalist bastards getting burnt, with small pensioner despositors being rescued.

Now, at this point, its the ECB and the EU institutions/sovereigns who are increasingly on the hook. Private shareholders and bondholders are fleeing, being cashed out at the taxpayers expense. Now, a write off of debt is all the more politically difficult to achieve because the guys who *should* have taken the hit are laughing all the way to the bank, meanwhile the taxpayers are furious at the very concept of having to be the mugs who are left with the cheque. Plus Trichet and company would actually have to admit that hoovering up all the Greek debt was actually a pretty bad policy. The fallout of the ECB's foolish policy coming home to roost could see the ECB collapsing if taxpayers revolted against bailing out the ECB on its portfolio "investments".

Why should we expect our EU partners to be able to face down that very real, and very understandable, fury when our own government retreats in full flight when pensioners protest against very modest reforms like medical cards being means tested? Its an increasingly desperate hope that if we just hold on for a few more weeks, months or years that suddenly, when everything is at its grimest that the Germans and French will come thundering over the horison, the sun rising behind them, to save us by offering generous debt forgiveness and limitless access to credit at easy terms.

Quite simply, if I were the ECB/EU - if youre Ireland, and if youre paying your debts on schedule...why do I care what measures you have to take to ensure you pay me on schedule? So long as we dont threaten to default, the ECB/EU couldnt care less about our domestic economic position. Why would I risk increasing moral hazard by forgiving your debts? Why would I pass your debts (freely chosen - it was the freely elected Irish government that decided to take on the entire debt of the Irish banks) onto the backs of the wider European people?

This is why the "badly behaving" Greeks seem to get better deals whilst teachers pet, Ireland, cant even negotiate a tiny reduction on an interest rate which seems to mystify so many people. Nice guys finish last. Unless we're willing to give the ECB/EU a reason to talk to us, they wont.

Our absolute priority, and the Greeks, needs to be taking charge of our own destiny by ensuring that as a state we live within our means. The sooner we reach that position, the sooner we can dictate terms to the ECB/EU as to when, how or even if they will be repaid.

ei.sdraob wrote: »

This post had been deleted.

They are infallible since gravity failure is not allowed in this weird system we find ourselves in [/QUOTE]

If it seems to defy economic logic, that's because it does defy economic logic. That, in turn, is something politics regularly does - and as long as the politicians have sufficient will, sufficient support, and sufficient resources, it can be done successfully. The question is whether they do - so far the answer in this case is yes, but it's an egg and spoon marathon rather than the 100-yard hurdles, so we won't know whether it's successful or not until it's over, and we won't know whether it's over until it's either been successful or not. And, sadly, neither the EU nor the ECB come within shouting distance of infallibility. I'm not sure who the people are supposed to be who claim that - I suspect they're the sort of people who are happier out in the fields, scaring crows.

cordially,
Scofflaw

ressem wrote: »

Articles in a paper today (haven't found a link yet) were suggesting that it's less the debt writedown that is worrying the central banks in Europe and the States;
and more to do with a failure to pay on time and in full triggering credit default swap payouts.

Having to pay out would bring a whole new gang of insurance institutions to the brink. So we're seeing articles such as "Does the euro crisis have a hidden A.I.G.?" http://www.nytimes.com/2011/06/23/business/global/23swaps.html?pagewanted=1

If you look at the games that a US hedge fund are alleged to be participating in, (http://www.propublica.org/article/the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble-going)
losses from side betting could exceed the writeoff.

From the NYT article:

The equity bought by Magnetar represented just a tiny fraction of the overall CDO. If it costs, say, $50 million, an entire CDO could be 20 times that, $1 billion. And if the CDO begins to go south and you're smart enough to have taken out enough insurance, you can make hundreds of millions of dollars. That, of course, would take a bit of the sting out of losing your original $50 million investment in the equity.

Magnetar Does Its First Deal

As Magnetar set up its CDO shop, the hedge fund hired Jim Prusko, a smart and affable investor who had worked previously at the Boston money-manager Putnam Investments. He would shoulder much of the work of courting Wall Street bankers and managers who worked with the hedge fund. He operated out of Magnetar's office in midtown Manhattan around the corner from Saks Fifth Avenue. In an office of 20-somethings, Prusko, then 40 years old, stood out as the "old man."

Urg. Offices full of 20-somethings (mostly men), allowed to play with billions of dollars in an attempt to pull off bigger, cleverer deals than the next office full of 20-somethings. That's just wrong - stupid wrong, to a degree difficult to parallel in any other arena, short of handing out nukes to them and seeing what they can pull off if they're 'smart' enough.

What would happen if we ran the electricity grid like that? Or the roads? Or any other vital part of modern socio-economic infrastructure?

glumly,
Scofflaw

beeftotheheels wrote: »

Haven't you ever heard of the efficient market hypothesis??

Amused,

Beef

I find myself less and less able to distinguish it from other religious dogma...

cordially,
Scofflaw

beeftotheheels wrote: »

I have to say, I never tried!

No, that's a lie, 12 years ago when I first donned a suit and headed into the city I bought into it.

Two years later my best mate left the firm we had both joined on graduation and went to work for a US Gas trading business.

I remember sitting in a pub in Whitechapel a couple of months later having a pint and listening to her rant about the fact that their auditors were asking all the wrong questions "You'd think they actively sought out people who didn't understand M2M accounting to audit our books so they couldn't ask us the wrong questions", I remember saying "calm down C, remember how it was when you worked for us, remember how we thought everything was perfect and there was always a right answer and then we started work and discovered that things got made up as we went along".

She remembered, she calmed down, we enjoyed our few pints.

Couple of months later it turned out Arthur Andersen may have been turning a blind eye to inconvenient issues in their biggest consulting client's audit, and C was out of a job when Enron went t!ts up.

And my infantile faith in the efficient market hypothesis went right along with it.

I recall a similar revelation when I went into business - prior to doing so, I had assumed that businesses were mostly run in a rational and intelligent way, rather than being cages full of gibbering monkeys flinging poo at each other. Ah, youth and naivety!

Still, the marvellous thing about a market economy is that by and large it manages to work despite that, which virtually no other system seems to. I wonder if it's not the case that the problem in the other systems is allowing over-large shares of control to a small number of operators - a problem that also applies in the financial industry - because it seems that you need over a certain number of independent operators (or transactions, in cases where that's the measure) for the monkeys to cancel each other out and produce something which, while hardly Shakespeare, is at least vaguely sensible.

Also, I have to give Andersen kudos for providing one of the best possible rejoinders to maternal concerns over self-employment, since my brother also worked for them, and had been held up as an exemplar of job security...

cordially,
Scofflaw

beeftotheheels wrote: »

The problem here is Black Swans. The markets seem to manage to work fine without them, seem to have issues with dealing with them, and given the sheer size of the recent ones governments have stepped in to try and mitigate the fallout (which free marketeers then use as a stick to beat up the governments for not allowing the markets to function properly, and not allowing things to get as bad as they should have done).

I guess the question right now, is what size bird is hanging out in the Greek CDS market??? But all hail the markets, damn you ECB for trying to interfere with them.

Taleb always made a lot of sense to me...I seem to recall seeing some unpleasant figure with respect to the use of quant's models in the market, many of which suggest that trades can essentially be made risk-free, at least partly (in my understanding of it) because the wrong statistical distribution (Gaussian) is often their basis.

Still, we're not short on people who apparently believe that the markets, left to their own devices, produce optimal outcomes in every case.

cordially,
Scofflaw

beeftotheheels wrote: »

And so we're back to moral hazard vs contagion.

How will the market participants learn if we bail them out of their stupidity of thinking that they had mitigated all risks? It is not just the quants, the mentality of "mitigating" risk to the point where you feel comfortable ignoring it permeates the whole financial industry, the mispricing of risk is one of the biggest issues with the credit crunch (which is ongoing in my book).

How high a price are we prepared to pay to teach them this lesson on the correct pricing of, and dealing with, risk?

The man's website is appalling but have you read his ten principles for a black swan-proof world?

http://www.fooledbyrandomness.com/tenprinciples.pdf

More or less when it came out...hence my call for treating banks as utilities:

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and riskbearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

A banking sector either nationalised as a utility, or consisting only of 'free, small, and risk-bearing' banks. One or the other - up to people's preferences.

cordially,
Scofflaw

Looks like the rating agencies have sunk the dream of achieving a defaultless default. Eventually people are going to have to catch up to the reality that investors arent morons - all the effort thats been exerted to try find a mechanism that might arguably not be considered a default might be better employed attempting to prove the earth is flat.

Sand wrote: »

Looks like the rating agencies have sunk the dream of achieving a defaultless default. Eventually people are going to have to catch up to the reality that investors arent morons - all the effort thats been exerted to try find a mechanism that might arguably not be considered a default might be better employed attempting to prove the earth is flat.

Ah, but the CDS problem is called by ISDA and not the ratings agencies, and who have the votes on ISDA? The banks. So, it is already being surmised that the banks, given they came up with the voluntary rollover, might vote that it didn't trigger the CDSs while obviously having a conflict of interest.

http://www.ft.com/cms/s/0/0589a94e-9d9f-11e0-9a70-00144feabdc0.html#axzz1RNE6C0LA

It has been speculated that the lawyers are already circling ISDA...

femur61 wrote: »

I think that is because most people have moved their money. Most people I know with any money has moved thier savings. The statement from the unions now advising their members not to pay thier mortgages has worried me now as some guy on the radio said that if they carried through with that threat the banks would definetely go bankrupt. My serling account has just opened, I think I'll move some off it.

I'm not sure that "most people have moved their money", though. There's only a drop of 19% from peak overall - and that peak was during the period of the Guarantee, when Irish banks were probably one of the safest bets around.

cordially,
Scofflaw