The real question is why we don't do something about the market itself. It threatens to destabilize whole countries and the world economy again and we already saw how competent the current players are at evaluating risks.
It's the same exact people and institutions who have failed 3 years ago (lets just ignore the other major failures like the the dotcom bubble).
Now i'm not saying that the PIGS aren't also at fault, or the regulators or politics in general, but i'm truly at loss why we haven't at least muzzled the idots at Moodys, Fitch, S&P, Goldman Sachs et al. Really we don't need their "expertise" right now. The rest of the world should really have stood up to the US and the UK after the last debacle and done something about the financial markets.

I don't get your last sentence. Why blame the Anglo countries for the Euro crisis?

Where did the credit crunch start? Which banks were creating CDS instruments that were the means by which a property price correction led to massive un-assessed liabilities? Which countries loosened banking regulation (laws and effective oversight)?

So you guys are saying that the Anglo countries are responsible for the Euro country debt problems? Isn't it really a function of Greece and the PIIGs -- maybe one of the I's gets a pass, but the PIG doesn't -- living beyond their means? Or perhaps you can argue that the Germans / French set up bad rules for the single currency, but I still don't get why you blame the Anglos. We didn't create the Southern Europeans welfare state, the demographic pressures, unrealistic government promises and the voters who supported them and still do. I just have no sympathy for the protesting Greeks. They made their bed (sloppily) and they don't want to sleep in it. What am I missing?

Ray Jay wrote:I don't get your last sentence. Why blame the Anglo countries for the Euro crisis?

I don't blame the UK and the US for the Euro crisis. I blame them for creating the whole financial system that is the underlying problem for our economic woes.
Both countries tried to bolster their financial sector to balance out the loss of their industrial base which led to banks, insurers and financial investors to basically be able to do whatever the hell they felt like doing.
After driving into the ditch for the xth time we had to again bail them out and what is the very first thing they do after we rescued their asses ? They specualte against weak countries we desperately try to save without having revolutions and civil unrest and complete breakdown of civil services.
Really i'm the last one who wants to pay for the idiot Greeks after paying for the idiot bankers, but the idea of a failed Greece or worse Spain or Italy i digg even less.
So i'd appreciate it if the financal institutions in their various guises wouldn't actively try to ruin said countries to make a quick buck. And because i really believe they can't help themselves i believe it's time to break up the banks, reregulate the markets, stop some of the derviate trading and other speculative investments and throw a few hundred of them in jail to rot there just to make an example of them.
I'm well aware of the political mistakes that were made on the level of the EU and each of those countries, but what we need now is time and stability to solve the problems. They were decades in the making, we can't solve them in a year or two and the financial markets just make things worse.

Got it.

I've never quite understood the argument against speculators. Aren't they just prescient. If the underlying economics are good, the speculators go broke. If the speculators are right about the underlying economics, they win big. But they don't cause the problems, although I'm sure there are some small exceptions to that. But in the main, they are just slightly accelerating the inevitable.

Ray Jay wrote:Got it.

I've never quite understood the argument against speculators. Aren't they just prescient. If the underlying economics are good, the speculators go broke. If the speculators are right about the underlying economics, they win big. But they don't cause the problems, although I'm sure there are some small exceptions to that. But in the main, they are just slightly accelerating the inevitable.

Well they don't go broke if they are a big bank, because then we're again forced to rescue them. The other thing is they create instability, take away options and make it that much harder to solve a problem.
We really can't have Moodys or Goldman decide when a country is going to the crappers, because well they'd like to earn some money.

Ray Jay wrote:Got it.

I've never quite understood the argument against speculators. Aren't they just prescient. If the underlying economics are good, the speculators go broke. If the speculators are right about the underlying economics, they win big. But they don't cause the problems, although I'm sure there are some small exceptions to that. But in the main, they are just slightly accelerating the inevitable.

Speculators are not disinterested and remote. They may have a considerable interest in their 'predictions' coming to pass. Their actions influence the reality that they are gambling on.

They may not cause the underlying problems, but they can exacerbate them, blow them out of proportion, create bubbles, start runs based on rumours, and they can profit from all of that.

In most cases I think you are shooting the messenger.

Ray,

I respect you, but I think you are seriously underestimating the influence of people who are moving billions of dollars around the world. They may be acting based on a problem, or they may be acting based on the perception of a problem.

Heh. So to be clear, because the PIIGs misused the funds they borrowed by squandering them on unaffordable social welfare programs, the "financial markets" who lent them the money are at fault? Interesting argument, gents, but (alas) not at all novel. King Richard advanced a similar argument with respect to Jewish moneylenders back in 1190 and was copied by Phillip of France the following year. That worked so well that his grandson used the same line with respect to the Templars in 1307. It got them out from under their immediate debts, but it rather discouraged prospective lenders.

As Robert Mugabe and Hugo Chavez have discovered, capital is astonishingly fluid--even in the most repressive regimes. Treat it well or it will summarily depart, and you'll find out what "living within your means" really entails.

They may be acting based on a problem, or they may be acting based on the perception of a problem.

Schrodinger and his cat may be able to tell the difference, Dan. I can't.

Machiavelli wrote:

They may be acting based on a problem, or they may be acting based on the perception of a problem.

Schrodinger and his cat may be able to tell the difference, Dan. I can't.

I agree, in financial markets, this may be a distinction without a difference.

Is this an admission that you can't tell perception from reality, Mach?

The problem is that they are not even just 'observers' who by their observations affect the system - they are also actors.

For example, Goldman Sachs. They didn't just invest in Greece or do so on behalf of their clients, or issue reports on the economy, or provide advice. They conspired with the Greek government to hide the extent to which Greece was in deficit! If they had been honest (and no-one else had taken up the opportunity to make such an arrangement), Greece's problems would have come to light earlier, but perhaps would not have been so bad as they are now.

In all gambling there's a salient cliché: the house always wins

They may lose the odd bet, but they set the odds, they lay bets to alter the odds, they take a commission, they get involved in the regulation, and they choose what games to play. It's the same in all forms of gambling, whether it's on sports, in a casino or in high finance.

The difference is that (unless there is cheating going on), the sports betting and the casino betting don't affect the outcome of each proposition. However, in high finance, the moving around of large sums, the deals that are done and the prices that are set are themselves part of the market that they are 'bets' in.

No-one has said that Greece and the others are only in this mess because of speculators and the financial crisis that was born in the US and UK over 2007-8. Clearly they had issues. However, the question has to be whether those were exacerbated by the actions of speculators, and by the effects of the 2007 credit crunch and 2008 banking crisis and 2009-10 global recession.

danivon wrote:For example, Goldman Sachs. They didn't just invest in Greece or do so on behalf of their clients, or issue reports on the economy, or provide advice. They conspired with the Greek government to hide the extent to which Greece was in deficit!.

But doesn't the Greek Government hold a greater liability for actually doing it? I mean Goldman Sachs may have come up with the plan to mask the Greek deficit but the Greeks didn't actually have to follow it did they?