According to Spiegel Online, Greece has been getting liar loans from everyone’s favorite subprime lender. In this case, the lying was about the exchange rate (the loans were structured as currency swaps with “fictional exchange rates”) and the national balance sheet (the “credit disguised as a swap didn’t show up in the Greek debt statistics”). As with many subprime loans, these are designed to explode in the “long term” (i.e., after the insiders have gotten the hell out). Of course, the insiders got out quickly: “Goldman Sachs charged a hefty commission for the deal and sold the swaps on to a Greek bank in 2005″ (one would expect nothing less!).
So how big are Greek debts? “In 2002 the Greek deficit amounted to 1.2 percent of GDP. After Eurostat reviewed the data in September 2004, the ratio had to be revised up to 3.7 percent. According to today’s records, it stands at 5.2 percent.” Hey, what’s a few percent of GDP between friends?
Whatever credibility Greece may have had, it’s gone now. And does anyone think that their able bankers didn’t sell similar products to other greedy piigs?
According to the Telegraph, hedge fund David Tepper’s compensation this year will be about $2.5B. Of course, Tepper’s fund creates nothing useful for anyone, it simply expropriates value from the rest of society. This is inequitable, wasteful, and, at a time when many Americans are struggling to put food on the table, morally reprehensible. Yet there appears to be absolutely no political will to get speculation and speculative profits under control (admittedly, it’s probably not surprising given the influence of the financial oligarchs in Washington).
Life is back to normal on Wall Street, and the prospects for meaningful reform are dim. And the financial innovators are already gearing up for the next round of excitement. The New York Times reports on securitizing life insurance policies, and Reuters reports that Markit has launched indices for the up-and-coming sovereign debt CDS market, so speculators can bet on whole countries going under. Skeptics may point out that trading life insurance policies is an unproductive zero-sum game, and rampant CDS speculation helped bring the world economy to its knees. But why let such quibbles get in the way of profits?
msnbc has posted an article about senior executive compensation at the bailed out banks titled “Options windfall likely for bailed-out bankers“. From the article:
The top five executives at 10 financial institutions that took some of the biggest taxpayer bailouts have seen a combined increase in the value of their stock options of nearly $90 million, the report by the Washington-based Institute for Policy Studies said.
So the bailed out banks took advantage of the crash to award big option packages to their executives, probably justified by the argument that the options would give the executives incentives to restore the companies to health. When the government saved the day with generously helpings of taxpayer dollars, stock prices recovered nicely–and the executives got rich(er). Moral hazard, anyone? Needless to say, if the government had wiped out the shareholders and linked executive compensation to more meaningful metrics, this wouldn’t be happening.
The House of Representatives took an impressively sensible step toward combatting climate change by passing a cap-and-trade bill. At least in principle, the provision in the bill to levy a carbon tariff on imports from countries without carbon emission caps. I haven’t looked at the details of the bill, so I don’t know whether the provision is well crafted or not–and the devil is probably in the details. That said, the general concept makes perfect sense. Indeed, it would be patently silly for the U.S. to adopt a measure without such a provision, as that would encourage carbon-intensive industry to move to less restrictive nations, at once damaging the U.S. economy, reducing the effectiveness of the measure, and strengthening the incentives of less restrictive nations to maintain lenient policies rather than following the American lead.
So it’s depressing to see China and India take blatantly self-interested positions on the measure, rather than either (a) creating carbon emission regimes that sufficient to justify exclusion from the carbon tariff, perhaps pursuant to negotiation or (b) proposing to work with the U.S. on the design of the carbon tariffs so that they contribute to efficient reduction of carbon emissions in China and India. Here are statements from China and India, from the Financial Times:
“It has always been China’s position that the international society should fight climate change together, but the proposal of some developed countries to slap a carbon tariff on some imported products violates the WTO’s basic principles and is trade protectionism in the disguise of environmental protection,” said Yao Jian, spokesman for China’s ministry of commerce.
Earlier this week, Jairam Ramesh, the Indian environment minister, described carbon tariffs as “pernicious” and flatly rejected the idea of negotiating climate change at the WTO.
This is no way to engage with possibly the most pressing environmental issue facing the human race.
It’s bad enough that the nation’s infrastructure is crumbling–bridge collapses, frequent mishaps and accidents on the MBTA, now six dead in a Washington train crash–apparently the National Transportation Safety Board isn’t even keeping track. From the Bloomberg article on the Washington train crash:
The two most recent transit accidents the NTSB board reviewed were on Boston’s Massachusetts Bay Transportation Authority, spokesman Peter Knudson said. The board, which determines the causes of accidents, doesn’t keep statistics about transit incidents, he said.
So much for the Information Age.
In an article entitled “U.S. Needs More Inflation to Speed Recovery, Say Mankiw, Rogoff“, Bloomberg states that leading economists Gregory Mankiw and Kenneth Rogoff are advocating significantly higher inflation to reduce real debt levels. This is patently absurd, because is bails out irresponsible borrowers at the expense of responsible savers, and threatens long-term economic performance by undermining confidence in the dollar and the Federal Reserve. Moreover, intentionally inflating away debt would constitute a massive, discriminatory, and non-transparent wealth transfer, so it runs counter to ethics and basic constitutional principles.
Julius, I’d be curious to hear if you disagree, but I believe that a central bank should have only one role: to hold steady the value of fiat currency. The government may elect to engage in popping bubbles and cushioning downturns.
Simon Johnson, former chief economist of the IMF, writes that the US has developed a serious case of financial oligarchy, a disease more often associated with crony capitalism in developing nations. Unfortunately, he seems to be right. The Wall Street Journal has a lengthy article today about the ties between the New York Federal Reserve and Goldman Sachs. The New York Times describes the clubby relationship between former NY Fed president Geithner, now Treasury Secretary, and big Wall Street banks. We have a hedge fund millionaire chairing the Council of Economic Advisors. With oligarchs and their allies installed in key positions of the government and the Federal Reserve, the reluctance of the administration to nationalize the banks or get serious about regulating speculative finance is depressingly easy to understand. As is the billions of taxpayer dollars funneled to Goldman Sachs via AIG, contributing to impressive returns for Goldman shareholders. Our prognosis doesn’t look good.