[QUOTE=Fusion_power;302336]It should be obvious that a major government could play that game and win at the expense of all other players.[/QUOTE]

There is an old saying: "If you owe the bank a million dollars you have a problem. If you owe the bank a billion dollars they have a problem....

Nikos Konstandaras, managing editor and a columnist at the Greek daily newspaper Kathimerini, has an op-ed in today's NYT:

[url=www.nytimes.com/2012/06/15/opinion/how-greece-squandered-its-freedom.html]How Greece Squandered Its Freedom[/url]
[quote]None of [the major contending] parties have advanced a serious agenda to avoid disaster. Those who are deeply in debt — or who aspire to gain at the expense of others — hope that the economy’s slate will simply be wiped clean. Those who have stashed their money abroad will be able to buy assets on the cheap if Greece leaves the euro zone. But the people who work hard and pay taxes, who have a stake in reform and progress, who carry the burden of every mistake, have no credible representative to vote for. Those who want a better Greece have to look for the least bad option.

The widespread feeling of loss is worsened by the understanding that we wasted most of the past four decades — the longest period of peace and prosperity that the country has known. Greece made great strides toward achieving the standards of its European partners, with major infrastructure projects, hospitals and schools, and with European Union subsidies and markets helping to create a booming economy and a new middle class. But we allowed development to become a bubble. [u]We lost the self-discipline, moderation and inventiveness that once helped the Greeks achieve great things, and we succumbed to political expediency, delusions of grandeur and a fatal sense of entitlement[/u].

EVER since the Greeks began their war of independence against the Turks in 1821, these different aspects of the national character have been in perpetual conflict, resulting in breathtaking swings between glorious heights and desperate depths. The heroic resistance to the German occupation in World War II was followed by a terrible civil war between left and right that still cripples our politics; the inspiration of the Athens Summer Olympics in 2004 was followed by the economic, social and political ineptitude that brought us to today’s collapse of the main political parties, and what is turning out to be the destruction of the country’s backbone: small businesses and the middle class. [/quote]

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[b]Friday A-Musings:[/b]

ZH features a YouTube clip which summarizes the theme of "Democracy and the modern Banking Sector" in Dr. Seuss-style prose:

[url=http://www.zerohedge.com/news/banks-and-whole-democracy-thing-90-seconds-or-less]Banks And The "Whole Democracy Thing" In 90 Seconds Or Less[/url]

Latest "ru-mor-or-less" out of Europe
 

Ooh, look, it's the latest market-calming rumor of a plan to high-level-strategerize a grand plan to make everything hunky-dory in Europe again! But unlike the previous million-and-six such "weekend floaters", I'm sure *this* one is at long last the real deal, and am planning on two-fisted panic-buying of undervalued social-media stocks and discount-priced PIIGS bonds at the market open on Monday:

[url=www.nytimes.com/2012/06/17/world/europe/european-leaders-present-plan-to-quell-euro-zone-crisis.html?_r=1&ref=world]European Leaders to Present Plan to Quell the Crisis Quickly[/url]: [i]The plan will include measures to prevent bank runs and push for the repeal of regulations that hinder competition, keep young people out of the work force or make it difficult to start businesses.[/i]
[quote]The plan will include measures to prevent bank runs and reduce what has become a vicious cycle of government debt problems turning into banking crises, as has happened in the past two years.[/quote]
Or was that a vicious cycle of banking crises turning into government debt problems? No matter, the rumored planned plan is so grand that such niggling details don't matter
[quote] In addition, the plan will push for countries to remove the regulations and layers of bureaucracy that inhibit competition, keep young people out of the work force or make it difficult to start a new business.[/quote]
Ooh - a rumor of a plan within the grand rumored plan, for a planned push to quickly fix lots of minor problems which somehow have been unable to get fixed in the past 30 years, but will now quickly melt away in the face of the steely resolve of the faceless euro-crats who will be issuing the regulations from within the layers of the new Brussels-based bureaucracy devoted to removing regulations and layers of bureaucracy which are stifling economic growthiness in Europe.
[quote]The goal would be to make the euro zone less vulnerable to crises and better able to grow its way out of the current debt crisis. But it is unclear whether yet more pledges to reform will calm financial markets.[/quote]
Even better - a rumor of a planned goal of the grand rumored plan, to reduce vulnerabilitude and restore growthiness, and stuff. I see some in the audience scoffing, but ask yourself this:
[quote]Mario Draghi, the president of the central bank and one of the authors of the plan, said Friday that it would be unveiled within days, ahead of a meeting of European leaders at the end of June.[/quote]
Ask yourself, "with an unelecteed ex-Goldmanite like 'Super' Mario at the helm, what could possibly go wrong? After all, if anyone knows about growing real economies rather than Ponzi-financial ones, it surely is Goldman Sachs."
[quote]Under the plan, euro zone leaders will seek to establish the central bank as supreme bank regulator with broad powers, in place of the relatively toothless European Banking Authority.[/quote]
I gotta admit, I was kinda hoping for a proposed rumored planned title with a little more planned 'oomph', say "supreme infallible dear benevolent unchallenged leader-for-life through authority-from-the-heavens, with omnipotent super powers of bank regulation and economic stimulatitude and growthifaction" [SIDBULFLTAFTHWOSPOBRAESAG, for short]. I'm guessing y'all had to settle for a compromise here.
[quote]Countries would also create a deposit insurance program to augment national programs. The goal would be to reassure ordinary depositors and prevent bank runs, an imminent danger in Spain as well as Greece. But any sharing of financial burdens almost automatically encounters opposition in Germany. For example, Mr. Draghi has not advocated pooling euro zone debt into common bonds, an alternative that Germany rejects, at least for the near term.[/quote]
I keep telling the stubborn Kraut-heads, these will not be "common bonds" -- they will be uncommonly super-duper extradoubleplusgood bonds! Time for the exalted SIDBULFLTAFTHWOSPOBRAESAG to mass the tanks at the German border and get those troublemakers in line.

The Economist is after all parroting the line of its constituency - finance people. Why pay so much attention to stuff written by pimply-faced youth with a messiah complex.

Also disagree with the take on Spain's bailout being that of the government. The Spanish govt had one of the lowest debt-GDP ratios in the EU in 2008 and their debt-GDP ratio is still one lower than that of Germany. If only they could find it within themselves to follow the rules of capitalism and let the banks fail and the bond holders of said banks eat losses they would come out alright after a few years of pain. Instead we are staring at a lost decade or two. In fact the ECB has been a force of malevolence in this saga as they have made it their policy to put bank debt above sovereign debt.

The latest waffle-plan that you allude to in your last post Ernst is typical of the Eurocrat way of doing things. Once upon a time I used to have very positive feelings towards the EU. They were forcing their constituent countries to behave decently - say forcing Ireland to decriminalize homosexuality and make divorce legal - and presented a powerful counterpoint to a rampaging USA that was using force to try and retain its hegemony as the first ultra-power in the world. But the scales fell off some years ago I saw most of them as a bunch of do-nothing who come up with a bunch of grand sounding plans that are always a day late and a dollar short. A perfect illustration of that was EU funded research. I worked on several EU research projects and it was all talk and reports and accountability but precious little actual research was done. We have seen the same thing from summit after summit for the last two and a half years.

Euro:
Street is very short Euro and the Euro is a decent proxy for risk these days. Remember IAOT (It's All One Trade). So I would not be surprised if the events this weekend leads to a short covering rally to 1.30 and beyond. I would not load the boat with Euro shorts at this point.

[url=www.bbc.co.uk/news/world-18456131]Viewpoint: Why the young should welcome austerity[/url]: [i]Governments should be more honest about the size of their debts and young voters would be wise to get politicians to pay them off as soon as possible, says economic historian Niall Ferguson in the first of his BBC Reith Lectures.[/i]
[quote]The most recent estimate for the difference between the net present value of [U.S.] federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly thirteen times the debt as stated by the U.S. Treasury.

Notice that these figures, too, are incomplete, since they omit the unfunded liabilities of state and local governments, which are estimated to be around $38 trillion.

These mind-boggling numbers represent nothing less than a vast claim by the generation currently retired or about to retire on their children and grandchildren, who are obligated by current law to find the money in the future, by submitting either to substantial increases in taxation or to drastic cuts in other forms of public expenditure.

In his [i]Reflections on the Revolution in France[/i], published in 1790, Edmund Burke wrote that the real social contract is not Rousseau's contract between the sovereign and the people or "general will", but the "partnership" between the generations.

"Society," says Burke, "is indeed a contract. The state is a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born."

In the enormous inter-generational transfers implied by current fiscal policies we see a shocking and perhaps unparalleled breach of precisely that partnership. [/quote]
And Ferguson puts the way most governments run their finances in blunt terms:
[quote]The present system is, to put it bluntly, fraudulent. There are no regularly published and accurate official balance sheets. Huge liabilities are simply hidden from view.

Not even the current income and expenditure statements can be relied upon in some countries. No legitimate business could possible carry on in this fashion.

The last corporation to publish financial statements this misleading was Enron.[/quote]

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[b]Friday Funnies, Sunday Edition:[/b]

[url=www.ritholtz.com/blog/2012/06/plutocracy-the-board-game/]Plutocracy: The Board Game[/url]

[QUOTE=ewmayer;302521][url=www.bbc.co.uk/news/world-18456131]Viewpoint: Why the young should welcome austerity[/url]: [i]Governments should be more honest about the size of their debts and young voters would be wise to get politicians to pay them off as soon as possible, says economic historian Niall Ferguson in the first of his BBC Reith Lectures.[/i]

And Ferguson puts the way most governments run their finances in blunt terms:
[/QUOTE]I visited this thread specifically to post the link already given. Ernst beat me to it.

I strongly recommend you read this article and pay attention to the (relatively limited) numbers included therein.

Paul

[QUOTE=xilman;302532]I strongly recommend you read this article and pay attention to the (relatively limited) numbers included therein.[/QUOTE]

My one quibble with the piece is that the accompanying table of deficit projections through 2017 seems wildly optimistic, as it appears to assume that global robust growth will return by 2013 and that the sovereign-debtor elite will have their budgets balanced by then, with further deficit increases coming only via interest compounding on accumulated debt. Not gonna happen.

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Nice [i]Vanity Fair[/i] - a rather appropriately-titled print venue, methinks - piece by Joseph Stiglitz:

[url=www.vanityfair.com/society/features/2011/05/top-one-percent-201105?currentPage=1]Of the 1%, by the 1%, for the 1%[/url]: [i]Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few. Yet in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret.[/i]
[quote]Some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie. That argument is fundamentally wrong. An economy in which most citizens are doing worse year after year—an economy like America’s—is not likely to do well over the long haul. There are several reasons for this.

First, growing inequality is the flip side of something else: shrinking opportunity. Whenever we diminish equality of opportunity, it means that we are not using some of our most valuable assets—our people—in the most productive way possible. Second, many of the distortions that lead to inequality—such as those associated with monopoly power and preferential tax treatment for special interests—undermine the efficiency of the economy. This new inequality goes on to create new distortions, undermining efficiency even further. To give just one example, far too many of our most talented young people, seeing the astronomical rewards, have gone into finance rather than into fields that would lead to a more productive and healthy economy.

Third, and perhaps most important, a modern economy requires “collective action”—it needs government to invest in infrastructure, education, and technology. The United States and the world have benefited greatly from government-sponsored research that led to the Internet, to advances in public health, and so on. But America has long suffered from an under-investment in infrastructure (look at the condition of our highways and bridges, our railroads and airports), in basic research, and in education at all levels. Further cutbacks in these areas lie ahead.

None of this should come as a surprise—it is simply what happens when a society’s wealth distribution becomes lopsided. The more divided a society becomes in terms of wealth, the more reluctant the wealthy become to spend money on common needs. The rich don’t need to rely on government for parks or education or medical care or personal security—they can buy all these things for themselves. In the process, they become more distant from ordinary people, losing whatever empathy they may once have had. They also worry about strong government—one that could use its powers to adjust the balance, take some of their wealth, and invest it for the common good. [b]The top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes[/b].[/quote]
Stiglitz mars an otherwise fine analysis by introducing the chimera of government redistribution of wealth. I would be happy with simply ending the hugely preferential treatment accorded the wealthy and the multi-national corporations, along with some common-sense regulation aligning the interests of corporate executives with those of the broader economy. You ran a mega-bank into insolvency via speculation and bad lending? Oh, look, instead of getting bailed out your firm gets taken down (with government only stepping in to backstop core broader-economy-related functions during the wind-down), and you get in line behind the depositors and other creditors for your "performance bonus". Oh yeah, and any bonuses you and your pals enjoyed during the looting orgy are subject to claw-back. Oh yeah, and if you and your buddies broke the law during the looting orgy, you actually get treated like a criminal.

That woukd rebalance the opportunity equation in a hurry, I think.

ZH's Bruce Krasting has a very interesting Greek-insider's perspective on the latest episode of "insolvent government election puppet theater". The bit about recently-issued German corporate bonds containing explicit "successor currency" language is very telling:

[url=www.zerohedge.com/contributed/2012-06-18/another-surprising-conversation-athens]Another Surprising Conversation With "Athens"[/url]

[QUOTE]May 18th, I'm going to speculate that EU banks, including in Greece and Spain, are going to have a major upheaval with extensive damage control efforts over the next few days.[/QUOTE]
This one played out in spades. The banking systems in both Greece and Spain have seen that upheaval and the rest of Europe is in turmoil with the possible exception of Germany. Spain is now on life support with a €100 Billion bailout. Cyprus is now a casualty.

[QUOTE]May 28th, Does anyone care to speculate when Spain will cross the 7% interest rate threshold? I'm claiming the 30 days or less horizon.[/QUOTE]
This one was spot on. They crossed the 7% threshold as of today June 19th just 22 days later.

[QUOTE]June 10th, Actually, €100 Billion will be about enough to recapitalize the banks.[/QUOTE]
In my opinion, this one is now drastically wrong. The fundamental picture is changing with more housing related loans going sour which is adding stress to the Spanish banking system. This can be viewed that the banking entities were underestimating the level of damage or it can be viewed that the number of sour loans has increased or some combination of both. Either way, the result is my estimate that €300 Billion is required to put the banking system back in order and that figure may wind up being too low given that more EU economies are now in the danger zone. In other words, more damage is likely to occur with a resulting increase in the damage in Spain. As more loans go upside down, more people will walk away from them which becomes a repeating cycle.

[QUOTE]June 11th, The problem is that fixing the banks is only one small step in fixing the Spanish economy. Bursting economic (housing) bubbles create so much drag that even if the banks have money to lend, nobody will want to borrow it. This brings on the problem of stimulating an economy that can be likened to a heart attack victim. Unless you get the heart beating again, there is no way that plugging the banks balance sheets will help the overall economy which means Spaniards are set for at least 20 years of doldrums.[/QUOTE]
Only time will tell for this one, but it is looking more and more accurate daily.

I expect major political turbulence in Spain over the next 3 months. No idea who will wind up winners vs losers, but the indications are that the people will turn into an ugly mob as more of them become homeless. On the bright side, this does indicate real estate values will plummet which in the long term will lead to an improvement in the economy. In the short term, it is very painful.

DarJones

[QUOTE=xilman;302532]I visited this thread specifically to post the link already given. Ernst beat me to it.

I strongly recommend you read this article and pay attention to the (relatively limited) numbers included therein.

Paul[/QUOTE]

Niall Ferguson is a dickhead. End of!

[QUOTE=garo;302704]Niall Ferguson is a dickhead. End of![/QUOTE]

That doesn't make him wrong on this. Nice ad hominem, though ... allow me to "add homonym".

(Actually a homophone, but that ruins the quip).