Wednesday, February 17, 2010

The Greek tragedy

In many ways the greek tragedy is a play about modern monetarism theory or MMT and its relation to politics.

For those that don't have the time or inclination to follow the details, it appears the pied piper has finally caught up with the hellenians.

A debt crisis threatens the ability of Greece to raise cash and sell its EU bonds. Some cry foul, calling it mounted attacks by hedge-funds, other see a proverbial justice in having socialist countries pay for their profligal sins. Deficits don't matter?

So when the rubber meets the road, the EU politically backs the debt of its participants fearing a debt contagion to the rest of the member countries. But in practice no nation wants to fund the greek bill. Germany knows re-unification and the prospect of paying through the nose for socialists in the south that are not even grateful is un-appealing. In holland they have passed a bill that they would provide no help.

And here the reality of the Euro hits home. It is a monetary authority without the fiscal authority. The EU is no US. Political authorities are still local and can be at odds with the unified monetary system. There is no central treasury. Someone wrote, you can have any 2 amongst these 3: democracy, monetary union, sovereignty. Europe wants all 3. Either regional sovereignty gives or the EMU gives. That's an interesting one and a good test of democracy (assuming that one stays :).

The FT this morning has a great article calling for a "leave of absence" from the EU for greece. The technicality says they would re-enter with a devalued exchange. This is akin to a monetary policy effect by printing money. How easy it is to do it within the US.

Consider California, it is waaay bigger than greece and it too is in bad financial shape. A fiscal crisis looms, can CA sell new bonds? Does anyone care? I haven't seen the muni market implode yet.... the implied assumption is that the federal government would fly to the rescue of the states and they would get their bailout monies just like the rest of them.

Do you hear Texas threatening to secede because they are tired of paying for those pretty boys socialists over there on the west coast? The political landscape is very different and the FED has been doing massive printings of money to rescue its economy and the world financial system. Ironically, the dollar is rallying, the US assets being a refuge value when the shit hits the fan. Go figure.

On that note, I was told to trade the EUR/DOL in the 1.35-1.55 range by a trusted advisor. I was holding at 1.53 and rode it to 1.43 where I sold some and it is now at 1.36... time to buy back?


Andrew Meyer said...

Interesting, we'll see where this all leads. One thing I sure, nobody knows. Sitting here now wondering what's going to happen, I'm reminded that the future is very difficult to predict. No one would have thought that the man Monica Lewinsky would bring down would be Newt Gingrich...

One other perspective you might want to consider:

It caused me to rethink what's happening elsewhere.


Bill Burke said...

The Economist had a great article on Greece this week. It seems the same sneaky bullshit with CDOs was done with Greek debt, lead by, none-other, Goldman Sachs. They also had a convincing argument stating that derivatives do not mitigate risk, but instead just hide and abstract it. But, I guess that's something you've been harping on for awhile.

When are they gonna outlaw this derivative bullshit!? Can't we put all these PhDs from MIT and Caltech to better use?

Marcf said...

I have been following the greek-gs thing. I think it was an asset and fx swap. I frankly do not see anything illegal. Not even sure it is amoral... greece liquified assets in a swap, so what.

Outlawing derivatives is not going to happen not all derivatives are bad.

I am with you on the "PhDs could be put to better use"... I think it is a waste of talent... they could build companies or something :)