What the hell do we do about the Euro?

[Richard Roman]

Far from promoting growth and political solidarity, which is what the single currency was supposed to do, the euro is in fact achieving the opposite effect, by condemning the eurozone to long term recession and now extreme political infighting. Again, it cannot be right to persist with something which is achieving the opposite of what it was meant to simply because the alternatives are thought to be worse.

 

What does anyone here think? This is serious

[马吉帝 Majdi]

Quote from BBC News. 

"

Miguel Arias, the Popular Party's campaign co-ordinator, said Spain was "going to make all the sacrifices".

"We have been living as a very rich country," he told BBC News.

"People are used to a very high level of public services and it takes time to them to acknowledge the realisation that we now are a poor country, that we have lots of debts and in order to pay them back we must reduce public expenditure and then we must recover the confidence of the markets."" 

"Spain's is the third Eurozone government in as many weeks whose fall has been attributed to the debt crisis." 

http://www.bbc.co.uk/news/world-europe-15809062 

 

 

[Fin MacDonald]

Well, my understanding quite to the contrary.  The mortgage market was highly leveraged by the banking industry.  That's why it crashed.  Not because of mismanagement by debtors.  Non causa pro causa.

[马吉帝 Majdi]

Julien, sorry missed your last question. 

 

I meant to say that: Home, food and water are 'needs'. We feel 'fear' to not have them.

But we don't buy Bentley because the 'fear' of not having Bentley, but because of the 'greed' (or selfishness, show-off, self-fulfillment) to own a Bentley. 

I was trying to explain how many products are produced, not because of human need or fear, but to fulfill the Greedy desire of the Bentley's producer and the consumer. 

[马吉帝 Majdi]

Hi Fin. Agree with the pre-crisis origin of the credit default swaps.  What I meant there is the Crash in the credit default swaps market and bailouts, are the consequences of the crisis. The mortgage market was the spark that ignited the crisis which was followed by a crash in the poorly-regulated credit defaults swaps market leading, then we all know the story.. 

An entity/company which continues to operate with loss over decades, with increasing expenses and decreasing sales, is ought to lose creditors trust and declare bankruptcy at the end. Countries are no different. 

[马吉帝 Majdi]

Julien, "why Greece but not Japan?", because the current account deficit should be take into consideration along with the public deficit. Despite of its huge debt, Japan ranks the 2nd globally with its current account, only behind China, with Germany third. 

http://en.wikipedia.org/wiki/List_of_sovereign_states_by_current_ac...

So Japan has enough to pay creditors, on the short-term at least; while Greece is empty-pocketed. 

Those at the tail of the list are: Greece, Portugal, US, Italy, Spain. Brazil and France remains out of red circle due to their growth prospective, and France's status in the Euro zone.  

 

About the bailouts, I think these are result of the crisis. Banks didn't bankrupt before the crisis but were posting record profits. Whether the bailout process is fair or not, probably it wasn't completely fair, if any. 

Interesting to read that Tax evasion in Greece is like a national sport ;D

 

Speculation could shake the market temporarily, but when a country has the fundamentals for growth, it can overcome the speculations sooner or later (like Germany who has a solid manufacturing and economic base). But when the debt piles became so large and associated with slowing growth, jobs moving abroad, increased unemployment, Asian growing exports.. then it's rational to speculate a bad future for Greece. 

 

[Fin MacDonald]

Hi Majdi--

The topic does get rather difficult to follow when one talks of financial instruments such as credit default swaps.  Clearly, however, they are not the result of any crisis, as they arrived on the heels of the deregulation that occurred with the Commodities Futures Modernization Act and the repeal of Glass Steagall.  As a result, the banking industry was able to bundle mortgages and back them with credit default swaps.  This was not particularly a political machination, as banking had been deregulated.  Wikipedia: "Credit default swaps have existed since the early 1990s, and increased in use after 2003. By the end of 2007, the outstanding CDS amount was $62.2 trillion,^[2] falling to $26.3 trillion by mid-year 2010."

[Julien Cordry/朱可夫]

National debts did not create this crisis. Risky and very profitable (shall I use "greedy"?) investments in the US housing bubble did. Speculations in a deregulated environment created the crisis. Not national debts.

Again, some developed nations have a little debt, not too much, as China does. This is not a developed nations/developing nations issue. Debt is exactly the kind of tools that countries should be able to use to get out of a crisis. Why is Greece about to default and not Japan?

Bailouts were unfairly to the advantages of bankers. That would be because they were negociated by bankers more than by politicians. The French government lent money to French banks at 0% interest rate. Here. Free money. Want some more? After all, the taxpayers are going to pay for this. And those were not nationalisations for the most part. The governments still have no right to monitor those banks in any way. No counterpart whatsoever for those bailouts. Now the same banks are complaining about the solvency of the national debts they helped create.

Now that a former banker, Lucas Papademos, is the head the Greek government, we will see if he tries to fight against tax evasion which is like a national sport in Greece and which aggravates the national debt problem. If the debt of Greece is such a problem, that's what he should fight against, right?

Well, I wouldn't hold my breath over that. But you can bet that any social and health benefit is in danger, that working regulations will be changed for the worst and that Greek companies will be bought at an unfair price. The Greek national debt is not the main issue. It's just a good lever. In a normal situation, Greece would not be asked to pay 8% interest rate for a 10 years loan. Because there are simply no reason for Greece to default, if not speculation over defaulting and a Eurozone bailout. Until recently, Greece had a higher growth rate that the european average. And yes, I used the word speculation as opposed to investment. It's not about getting a few points of interests out of this anymore. Every time bad news come up about the deficit or the unemployment in Greece, people are actually happy about it because they are making money out of it. Nevermind the people. I don't know how to call that if not greed.

Majdi, on a sidenote, I'm not sure I understand you fully. You are basically saying that having a home, food, and water is not good, but having a Bentley is?

[马吉帝 Majdi]

In the 'investment thinking',  'greed' is an emotion.

Here's an article.

"Greed

Greed is the opposite emotion to fear, in that it is the emotion that makes us do things we would not normally do." 

http://daytrading.about.com/od/tradingpsychology/a/FearAndGreed.htm 

http://www.tradingtips.com/how-to-overcome-the-emotions-of-greed-an...

http://www.awaionline.com/2011/07/how-to-become-a-smarter-more-powe...

In the dictionary definition, it's a 'desire'. 

 

Anyway, let's get over the wording debate for the sake of the main topic. 

[马吉帝 Majdi]

If Greek didn't decide to borrow money, they wouldn't have to deal with Goldman Sachs. The problem roots in borrowing not in the 'greed' of the creditor 'Goldman Sachs'.

[马吉帝 Majdi]

Hi Fin,

Events like 'public bailouts', 'defaults swaps' ... were consequences of the crisis, not the cause, but they are indeed aggravating the crisis.

The ones who authorized the bailout decision, are the politicians (and the politicians behind the FED and Central banks), not the bankers themselves. Besides, bailouts were made to protect the savings of individuals, without the bailouts, a domino effect of massive individuals and corporate bankruptcies will take place with unpredictable consequences.

 

About gambling on derivatives and the banking system, there is no doubt that more 'greed' exist in the banking system... those in the bank are surrounded with money and many are concerned about making more money. But, let's look at the problem from a larger perspective, after the crisis took place, the banks bankrupted, people are poorer, even the growth of wealthy individuals decreased.... where is the money? if banks took the money, then why are they bankrupted and need bailouts; if individuals, the top 1%, took the money... where are these fortunes....?