Category: International Finance

Props to Gary Gensler………

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He’s been canned by the Obama administration for being too hard on the banksters, but on the way out, is implementing the meaningful derivatives reforms for which he was fired:

US regulators are likely to close a crucial loophole in Dodd-Frank rules in the next few weeks, in a move that will cost US banks many millions of dollars of revenues in the US$640trn derivatives market.

Several sources familiar with the internal discussions at the Commodity Futures Trading Commission say that the current exemption – which allows US banks executing derivative trades outside the country to bypass tougher capital holding and reporting requirements – will be allowed to expire on July 12.

CFTC chairman Gary Gensler, the only person with the authority to call a vote on extending the exemption, is said to oppose any extension and a spokesman confirmed that no vote had been scheduled.

“He’s determined not to extend,” said a lawyer familiar with discussions between lobbyists and the chairman. “And if it’s true that Gensler is leaving, maybe he wants this to be his final act before leaving.”

This is clearly a very large f%$# you to Barack Obama, Jack Lew, and (particularly) Timothy Geithner, and it is a well deserved f%$# you.

Obama and his and His Evil Minions™ have been determined to subvert meaningful banking regulations, and it’s nice that someone is standing up to him.

It will cost the banks some money, but I do not care:

If the exemption expires, all swaps deals involving US banks would be subject to the Dodd-Frank rules. Banks would have to set aside significantly more capital against each trade, which would eat into profits and potentially even drive clients to other banks.

Such deals would also become subject to much more onerous reporting requirements and would have to be cleared through an exchange – which could also reduce profitability and push away custom.

Figures from the US Treasury show that US financial institutions reported derivatives trading revenues of US$4.4bn in the fourth quarter of 2012, a 73% increase on the previous year.

There is an old saying about people who are inconvenient, “It’s better to have him inside the tent pissing out, than outside the tent pissing in.”

I thank Gary Gensler for pissing in.  On the matter of financial regulation, it is a very well deserved smack down.

H/T Naked Capitalism.

Good Point

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C.P. Chandrasekhar, discussing the so called middle income trap, where developing countries stall out at a slightly improved standard of living.

Why did places like Hong Kong, Korea, Singapore, and Taiwan become prosperous, while newer partners to the dance don’t.

Money quote is at the end:

And there are many who argue that growth in Asia stalled not before they liberalized but after they did. This is based in particular on the evidence that dynamism in Asian economies other than China, and to an extent India, faltered after the 1997 crisis. That crisis, we must recall, was related to the financial liberalisation many of these countries were forced to adopt, either as a quid pro quo for continued access to the export markets on which they were excessively dependent, or because waning manufacturing export competitiveness as a result of rising wage costs and appreciating currencies, pushed them into liberalisation of financial policies in the hope of making financial services the new engine of growth. The result was vulnerability to boom-bust cycles of various kinds that led to the synchronised downturn in many countries (with Thailand, Korea, Malaysia and Indonesia, among them) in 1997-98.

 This should possibly lead to two conclusions. The first is that, beyond a point export-driven growth has a way of running into internally generated constraints. Second, that among the factors that can undermine a country’s growth prospects, even at relatively higher income levels, is excessive liberalisation, especially financial liberalisation. Possibly most countries, whether poor, rich or in some ‘middle income’ range, find their growth has stalled for reasons such as these.

(Emphasis mine)

Hong Kong, Korea, Singapore, and Taiwan experienced their growths during the 1960s and 1970s, before we had “liberalization” (deregulation) and expanding inequality.

I tend to come from this from a more sociological perspective than a classical economic one, and I would argue that a liberalized economic policies, and in particular financial liberalization, is analogous to the colonial regimes in the 1800s.

The expanded financial services industries suck the marrow out of, well basically everyone in an orgy of non productive rent sinking, much like the colonial Satraps in the time of Victoria.

Basically, the banksters are f%$#ing the rest of us like a drunk sorority girl.

It shows that Timothy Geithner’s, and Wall Street’s creepy vision of the future:

Geithner hunched his shoulders, pressed his knees together, and lifted his heels up off the ground—an almost childlike expression of glee. “We’re going, like, existential,” he said. He told me he subscribes to the view that the world is on the cusp of a major “financial deepening”: As developing economies in the most populous countries mature, they will demand more and increasingly sophisticated financial services, the same way they demand cars for their growing middle classes and information technology for their corporations. If that’s true, then we should want U.S. banks positioned to compete abroad.

Is a disaster for the rest of us.

You Remember When it Was Reported that Germans Were Amongst the Poorest People in Europe?

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Well, Wolfgang Münchau has made what should be an obvious observation, that, “if the same unit of account gives us a higher wealth figure for Spain than for Germany, and when you also know that this cannot be true,” which means that on a very deep level, a Euro in Spain is worth something different (less) than one in Germany:

A European Central Bank survey shows that households in northern Europe have a much lower net wealth than those in southern Europe. Average German net assets per household are just under €200,000, while they are €300,000 in Spain and €670,000 in Cyprus. No, this not a typo.

 German newspapers screamed that poor Germans are bailing out rich Cypriots. This interpretation is wrong but the truth behind these counter-intuitive findings is even more disturbing. What the survey shows is not wealth differentials but the de facto exchange rates between the eurozone economies. They are not measures of net wealth but of imbalances. And they are enormous.

 Since the start of the eurozone, wages and consumer prices have remained broadly constant in Germany. In southern Europe, the general level of wages and prices has increased year in, year out. Over the period, this persistent inflation gap has led to a large discrepancy in asset prices. This is why an apartment in Milan costs much more than one in Munich, the city with the highest property prices in Germany. A German euro buys more real estate in Munich than an Italian euro buys in Milan.

 In the frantic German debate about these figures, the focus is on median wealth – the statistic that pinpoints the exact middle if one were to rank households by wealth. Looking at the median, the gap becomes even more extreme. In countries with extremely large wealth differentials such as Germany, where a few super-rich people own a large share of the land and real estate, the median is significantly lower than the mean.

When I mentioned that the Germans set up the Euro to export inflation to aid exports, I neglected to mention the obvious, that inflation is a devaluation of currency, and the inflation, largely caused by what the Germans demanded when the Euro was created.

Münchau correctly notes that the only way for this to be corrected is for Germany to inflate, or Spain (and the rest of them) to deflate, and since the Germans are opposed to any sort of meaningful inflation, this means crushing deflation in the rest of the Euro zone.

Of course, this doesn’t mean that the Germans cannot come up with a way to make the situation even worse:

Professors Lars Feld and Peter Bofinger said states in trouble must pay more for their own salvation, arguing that there is enough wealth in homes and private assets across the Mediterranean to cover bail-out costs. “The rich must give up part of their wealth over the next ten years,” said Prof Bofinger.

 The two economist are members of Germany’s Council of Economic Experts or “Five Wise Men”, a body that advises the Chancellor on major issues. There is no formal plan to launch a wealth tax but the council is often used to fly kites for new policies.

Yes, German “Wise Men”.

Now there’s a concept that makes the rest of us feel so confident about the future of the EU.

Prof Bofinger told Spiegel Magazine that it was a mistake to target deposit holders in banks, the formula used in the EU-IMF Troika bail-out for Cyprus where those with savings above €100,000 at Laiki and Bank of Cyprus face huge losses. “The canny rich in southern Europe just shift their money to banks in Northern Europe to escape seizure,” he said.

 Prof Feld said a new survey by the European Central Bank had revealed that people in the crisis countries are richer than the Germans themselves. “This shows that Germany has been right to take a tough line of euro rescue loans,” he said.

Only, as Münchau notes, it’s all about inflation and a market flaws created in the Euro Zone at German insistence.

The study shows how EMU states have twisted themselves into a Gordian Knot under monetary union, and why Germans feel a strong sense of grievance over escalating bail-out demands. Yet it is also highly controversial since it relies on data before the housing crash in Spain, and may understate implicit wealth in Dutch pensions or German life insurance.

Oh, yes, here is another reason why the numbers are bullsh%$.

Any attempt to enforce a wealth tax in future rescue talks will be seen by Club Med as further evidence that the Northern powers will try to impose all the burden of crisis adjustment on those in trouble rather than accepting their own shared responsibility for the failings of the EMU. This comes a day after Germany said over the weekend that there could be no banking union after all without a fresh EU treaty, effectively kicking the issue into touch for years.

 Critics have long argued that North Europe is equally to “blame” for the crisis since it flooded the South with cheap credit, and they accuse Germany of destabilizing the intra-EMU trade system by screwing down German wages and running a current account surplus of 7pc of GDP.

(emphasis mine)

As I’ve said many times, it’s exporting inflation to the periphery.

It’s why kicking the Germans out of the Euro probably the only thing that will keep the EU together.

Any serious move to a wealth tax could the erode the pro-euro ardour of South Europe’s uber-rich. The ECB bond buying policy has largely rescued the wealthiest strata while the full brunt of EMU austerity has fallen on ordinary people and the unemployed.

 The political debate on euro membership may change dramatically if rich Cypriots, Italians, Spaniards, and Portuguese start to see EMU as a threat to their property, rather than a defence.

This is seen as a problem. I see it as a solution.

The sooner that the Euro Zone breaks up, the more likely it is that we will not see the break up of the European Union and a return to conflict in Europe.

Attention Greece: You Now Have the Chance to Screw the Germans, Do IT!

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I was listening to NPR this morning, and discovered that the privatization/fire sale of Greek owned state assets that the IMF and the EU (really, the Germans) is not going as as quickly as expected, and one of the reasons is that some of the privatization deals actually effect the Germans and the rest as well, and they are objecting:

European governments, as well as Washington, are reportedly concerned over Russia’s possible expansion into Europe. Gazprom, Russia’s state-owned gas monopoly, has made a high bid for the Greek gas utility company. Media reports suggest the privatization agency has delayed choosing a buyer — under international pressure.

 There are also other strategic concerns, such as conflict with China over Greek ports.

 George Stathakis, an economist and lawmaker for the opposition leftist party Syriza, says China wants to expand its current control of a part of the Port of Piraeus and also buy the south-north railway link, raising fears China will flood the European markets with its inexpensive products.

 “German and Dutch interests are opposing the idea of using Greece as the primary source of Chinese trade with Europe,” Stathakis says.

(emphasis mine)

It’s not like the cheap Chinese crap will put Greek manufacturers out of business.  The Germans and the Dutch already did that.

Someone Greek will unload the ships, and someone Greek will fuel the ships, and someone Greek will operate the locomotives.

If some Germans lose their jobs over this, why should Greeks care?

Sauce for the gander.  The EU austerity caucus, with the Germans at the lead, had demanded, and got the dismantlement of the Greek public health insurance system.

Share the misery.

Romania Discovers that the Euro Sucks Wet Farts from Dead Pigeons………

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Romania is technically required to join the Euro at some point, but considering that they can set the date, my guess would be that date will be decades, if not centuries in the future:

………But as the euro crisis has deepened, it has also helped that Romania and the others have kept their own currencies.

That has given these still-developing countries a host of advantages, while many economists believe the euro zone’s one-size-fits-all monetary policy has hampered Ireland, Greece and Spain in restarting their moribund economies. Indeed, many of the post-Communist states are having strong second thoughts about their long-running goal of joining the euro.

Mugur Isarescu, the governor of the National Bank of Romania, said in an interview that maintaining its own currency had given Romania the flexibility to set interest rates, control liquidity and allow the currency to depreciate to help rein in the deficit. In the absence of control over monetary policy, he noted, euro zone countries like Greece are forced to rely primarily on fiscal policy: taxing and spending.

“Of course there is a backlash and disappointment because E.U. accession was seen as a panacea,” he said. “The dreams were too high.”

In Romania’s case, maintaining its cheaper currency, the lei, has made its exports — two-thirds of which go to the euro zone — more competitive and given it a lower cost of living that has made the country a sudden draw for highly qualified workers from struggling euro zone countries.

………

Seven of the 10 former Communist countries in the European Union have yet to adopt the euro. The Czech Republic, which uses the koruna, wants a referendum before joining and has cited 2020 as the earliest target date. Hungary has stuck with its currency, the forint, and said it would not adopt the euro before 2018. In Poland, Prime Minister Donald Tusk recently deemed the euro “completely unattractive.”

Romania’s previous target for joining the euro zone, in 2015, is now “out of the question,” is actually Mr. Isarescu said.………

The Czech Republic is potentially the most interesting case.

They have a very real possibility, both by virtue of their location and history, of becoming a manufacturing powerhouse that could be a very serious competitor to Germany.

If the Czech Republic drags its feet on Euro accession, and they start grabbing market share from the Germans, one wonders when the German politicians will start sounding more “Mediterranean”.

Pass the Popcorn…

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Gawker has acquired a cache of nearly 1000 internal documents detailing activities at Bain Capital, and they appear to show some fairly arcane tax avoidance schemes used by Rmoney to hide income from the IRS:

Mitt Romney’s $250 million fortune is largely a black hole: Aside from the meager and vague disclosures he has filed under federal and Massachusetts laws, and the two years of partial tax returns (one filed and another provisional) he has released, there is almost no data on precisely what his vast holdings consist of, or what vehicles he has used to escape taxes on his income. Gawker has obtained a massive cache of confidential financial documents that shed a great deal of light on those finances, and on the tax-dodging tricks available to the hyper-rich that he has used to keep his effective tax rate at roughly 13% over the last decade.

Today, we are publishing more than 950 pages of internal audits, financial statements, and private investor letters for 21 cryptically named entities in which Romney had invested—at minimum—more than $10 million as of 2011 (that number is based on the low end of ranges he has disclosed—the true number is almost certainly significantly higher). Almost all of them are affiliated with Bain Capital, the secretive private equity firm Romney co-founded in 1984 and ran until his departure in 1999 (or 2002, depending on whom you ask). Many of them are offshore funds based in the Cayman Islands. Together, they reveal the mind-numbing, maze-like, and deeply opaque complexity with which Romney has handled his wealth, the exotic tax-avoidance schemes available only to the preposterously wealthy that benefit him, the unlikely (for a right-wing religious Mormon) places that his money has ended up, and the deeply hypocritical distance between his own criticisms of Obama’s fiscal approach and his money managers’ embrace of those same policies. They also show that some of the investments that Romney has always described as part of his retirement package at Bain weren’t made until years after he left the company.

H/t Americablog, and the documents can be examined here.

It also appears that it’s getting coverage in the main stream old media (ABC) as well.

Heh.

Round Up the Usual Suspects

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The operative quote here is, “individual traders“:

American prosecutors and European regulators are close to arresting individual traders over the Libor scandal and charging them with colluding to manipulate global benchmark interest rates, according to sources familiar with the investigation.

Federal prosecutors in Washington DC have recently contacted lawyers representing some of the individuals under suspicion to notify them that criminal charges and arrests could be imminent, said two sources speaking anonymously.

Defence lawyers representing individuals under suspicion said prosecutors have indicated they will begin making arrests and filing charges in the next few weeks. In long-running financial investigations it is not uncommon for prosecutors to contact defence lawyers for individuals before filing charges to offer them a chance to co-operate or take a plea, the lawyers said.

(emphasis mine)

This is looking a lot like a US military investigation of war crimes.  The goal is to prosecute at absolutely the lowest level possible, and come down on the little fish like a ton of bricks.

We know how this works.  It’s called “looking forward, not back.”

If any one at the VP level is charged, I predict that they will be non-white, south or east Asian.

Yes, Geithner Sent Out a Strongly Worded Memo, and Kept LIBOR Fraud Secret

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Yes, in response to proof that one of the most critical benchmarks in international finance was being fraudulently manipulated, Timothy “Eddie Haskell” Geithner sent a memo, and then followed up by doing ……… absolutely nothing.

What a surprise.

Geithner has always been supportive of allowing the banksters to amass ill gotten gains in order to fill the holes in the balance sheets.

Because He is Wrong on EVERYTHING?

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Larry “I’m wrong about everything” Summers is a leading candidate for the next head of the World Bank.

Seriously.

Larry Summers wanted to export toxic waste to Africa, helped personal friends loot Russia during its “market reforms”, and has been wrong about everything he’s ever done in real world policy, and so he fails up to head the World Bank.

Well, it is a prime position for someone who thinks that countries in Africa are vastly UNDER-polluted.  (Yeah, he claims that it was all a joke ……… now)

Seriously: the is a class of people in the United States, and they fail over, and over again, but they keep falling up.

And people say that the Ivy League schools are over rated.

I can’t speak to the quality of the education, but the value of the connections are priceless.

Iceland Wins

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I don’t understand why other countries don’t compare what has happened to Iceland, and compared it to what is going on with Greece, Ireland, Portugal, etc., and realizing that telling the banks to go Cheney themselves is the best policy. Fitch’s has just upgraded Iceland’s credit rating from BB+ to BBB-, which means that they are now investment grade.

What is of note here is that the Icelanders made the decision to favor their own people over the banks:

Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country’s economic and financial collapse are reaping the benefits of their anger.

Since the end of 2008, the island’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.

“You could safely say that Iceland holds the world record in household debt relief,” said Lars Christensen, chief emerging markets economist at Danske Bank A/S in Copenhagen. “Iceland followed the textbook example of what is required in a crisis. Any economist would agree with that.”

The island’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year.

What? You mean the people of Iceland don’t want to become part of an institution that increasingly is an instrument of Germany’s incompetent hegemony? Hoocoodanode?

What they also did:

The island’s households were helped by an agreement between the government and the banks, which are still partly controlled by the state, to forgive debt exceeding 110 percent of home values. On top of that, a Supreme Court ruling in June 2010 found loans indexed to foreign currencies were illegal, meaning households no longer need to cover krona losses.

Note that both of these actions are considered to be cardinal sins under the international financial consensus, which states that creditors must always be repaid under the most favorable terms.

The fact that, “Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn,” is an anathema to the large financial institutions, as is the implementation of capital controls in a crisis.  (And, BTW, they are prosecuting senior bank executives as well)

They argue that these sorts of policies put a damper on international credit and finance.

They may be right, but it increasingly appears that the capital flows that they are describing do more harm than good for everything but the bankster’s bonus checks.

Keynes was right about this, and Wall Street and The City should thank their lucky stars that Iceland is small enough (population 318,452) to be ignored.

If other countries followed their lead, not only would the “Masters of the Universe” be out of job, they would be under criminal indictment.

H/t Credit Write Downs.

Oh My F%$#ing Ghod!

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The Obama administration is floating Larry Summers as the next head of the World Bank:

President Barack Obama may put his mark on the World Bank by nominating Lawrence Summers, his former National Economic Council director, to lead the bank when Robert Zoellick’s term expires later this year, according to two people familiar with the matter.

While a Summers nomination may draw criticism from some Democrats who disagree with his past stances on deregulating the financial industry, he has support inside the administration from top officials, including Treasury Secretary Timothy Geithner and current NEC Director Gene Sperling, said one of the people.

Secretary of State Hillary Clinton is also being considered, along with other candidates, said the other person. Both spoke on condition of anonymity to discuss internal White House deliberations.

Larry Summers’ record was too toxic for Obama to nominate him as secretary of the treasury, and the parts of his record that aren’t rife with incompetence or corruption show that he is completely incapable of operating in an environment like the World bank, which requires consensus.

There is no eleventy dimensional chess.  This is just stupid and arrogant.

H/t Felix Salmon.

Another Example Why the Credit Default Swap is the Toxic Waste of the Financial World

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On an article about how Greek government debt may take down the Euro, we find this little gem:

Lagarde’s demand for a larger haircut smacked into an onslaught of leaks from the bond-swap negotiations between the government and private sector bond holders. First, there were rumors that the banks had largely agreed on a deal. Then there were rumors that hedge funds that had acquired some of these bonds at a discount were refusing to go along with anything. They were betting that they could profit from a default because it would trigger CDS payouts. And if the majority agreed to the haircut, they would also profit because Greece would eventually redeem the bonds.

Now, there are rumors that the government wants to compel these hedge funds to join the bailout majority. Tool: retroactive “collective-action clauses”—if a majority of bondholders agrees to the deal, the recalcitrant minority could be forced to go along.

Of course, the question is how you can make money for this.

It comes down to the fact that there is something called the “naked” credit default swap.

The nickel tour is that a CDS is an insurance policy, you pay your premiums, and in the event of “something” happening, you get a payout for the “loss”.

The reason that I put “loss” in scare quotes is because unlike most forms of insurance, there is no requirement to hold an interest in the continued existence of whatever you are insuring.

This has been case since 1746 (!) when Parliament passed the Marine Insurance Act.

Basically, if I purchase a CDS on something risky, like Greek sovereign debt, I have to pay a lot of money, but let’s engage in a little mental exercise:

  • Assume a billion dollars in a specific debt issue.
  • Buy $1 million dollars in debt at a discount from someone who is scared, let’s say it’s 50¢ on the dollar. So you spend $500,000.
  • You purchase a CDS on the whole issue, let’s assume that it’s a 30% payment, or $300 million.
  • Refuse to accept a haircut, triggering a default, and a full payout on the CDS.
  • So, you spent $300.5 million, and get a $1 billion payout.

This is vulture capitalism at it’s worse.  You don’t just wait for something to die, you figure a way to pluck out the eyes to hasten the demise.

This is a microcosm for everything that is wrong with “Anglo Saxon” hyper-capitalism.

Some Insights into the Greek Debt Crisis

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First, it appears that George Papandreou’s suggestion as to a referendum scared the hell out of the (Conservative New Democracy Party) to the degree that it has forced them to support the bailout, which they had maintained for political advantage.

So I’m beginning to wonder if this was a ploy to defuse the opposition’s well ……… opposition ……… to the debt deal.

The other thing that I find interesting is that both Greek PM George Papandreou and opposition leader Antonis Samaras were roommates in college, specifically at Amherst College, in Massachusetts.

They, like many other world leaders (Benazir Bhutto, Radcliffe ’73, and Mikheil Saakashvili, Columbia George Washington University, come to mind) are the sons and daughters of their countries elites and products of the American post-secondary education, where they hang with the future Wall Street banksters and multinational executives.

It comes as no surprise then that they support the neo-colonial policies that devastate their countries, because they have been thoroughly inculcated in the belief systems of their de facto colonizers, and so for a (small) slice of what is extracted from their countries, they mortgage their countrymen’s futures.

It’s not limited to US Colleges, we find similar things with other leaders and Oxbridge in the UK, particularly amongst former British possessions in Africa.  (See Mugabe, Robert)

So what these countries are left with are battles between two groups of willing participants in the raping of their countries who are just fighting for the spoils.

It’s no wonder that people are drawn to populists like Hugo Chavez, who are little more than punks.

I’m beginning to think that our current international norms for finance and economics are about as effective in making the world better as leeches and bleeding were for syphilis.

The Big Picture is that the Current International Regime is Anti-Democratic

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That is the big picture of the fact that Greek PM Papandreou started pushing for a referendum on the Greek bailout, and was forced to back down under international pressure.

When we look at both international financial policy, and international trade policy, it is predicated on the idea that ordinary people will never support these policies, because they are simply too stupid to understand the bigger picture, and see that these policies are too their benefits.

What the very serious people don’t understand is just why the ordinary people don’t like this.

The fact is that we are dealing with tribal issues, and the people at the top, the ones who make these policies, have very little meaningful interaction with the people who actually produce the stuff that makes the economy work.

They go from the equivalent of Phillips-Exeter to Harvard to Wall Street to Washington to Wall Street to Washington to Wall Street to Washington ………

The reason that people don’t support these policies is because they see the effects on their lives of the policies that favor multinational corporations and mega-banks, and these effects are negative, while the policy makers, who roomed with the banksters and the executives to be at college, simply have no clue as to how the other half (actually 99%) lives.

The fact that this has been aggressively sold for decades, and a society which embraced the Snuggie® with open arms has rejected these policies.

While it is true that the commons are not universally correct, the fact that the public has continued to be extremely skeptical despite a full court press does seem to indicate that there is a disjoint between the conventional wisdom and the reality.

After all, we have advertising firms that could sell snow to Eskimos with a 6 month campaign.

Greeks Approve Suicide Pact

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You know, I was in the car, talking with my son about Greece, and I said that the Greek parliament had approved their own suicide pact by approving the austerity program demanded by the ECB and IMF.

My son, ever the precocious almost 11-year-old, asked me why it was a suicide pact, and I explained that austerity causes the economy to contract, which makes you less able to repay your debts.

I said that it was like demanding a salary cut so that you can better pay your debt.

My son did not understand this at all.

I explained that it was because they are stupid, and by “they” I mean the European Central Bank, the International Monetary Fund, and Angela Merkel.

Charlie did not find this a satisfying answer, and, truth be told, I don’t find it a particularly satisfying answer.

What the Shrill One Said

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Paul Krugman offers a data point that shows that default and devaluation works better than austerity and debt peonage.

The spread on an Icelandic CDS is now about a third that of the Irish CDS, which means that their borrowing costs are lower, as is the confidence of the market in their credit.

Rolling the Nobel Laureate:

Why, it’s almost as if defaulting on debts run up by runaway bankers and letting your currency depreciate works better — even from the point of view of investors — than socializing private-sector losses and grimly sticking with a fixed exchange rate.

Or to put this in earthier terms, if you want to survive this sort of financial meltdown, f%$# the banks, not the average citizen.

What the IMF Has Been Doing to 3rd World Nations For Years…

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Click for full size


At least there is symmetry

So it should come as no surprise, that IMF President Dominique Strauss-Kahn has been arrested for raping a hotel housekeeper:

The arrest of International Monetary Fund chief Dominique Strauss-Kahn on sexual-assault charges threatened to upend French politics and weaken the IMF’s central role in resolving Europe’s deepening debt crisis.

Mr. Strauss-Kahn, 62 years old, was expected to be arraigned Sunday night on charges of attempted rape, criminal sexual assault and unlawful imprisonment of a maid in the New York City hotel where he was staying, police said. Mr. Strauss-Kahn retained prominent defense attorney Benjamin Brafman, whose clients have included singer Michael Jackson and rapper Sean Combs. Mr. Brafman said Mr. Strauss-Kahn would plead not guilty.

Mr. Strauss-Kahn’s arraignment was delayed late Sunday when police sought a search warrant to examine the IMF chief’s body for scratches or the accuser’s DNA, a law-enforcement official said.

We are living in weird times.

Obviously, rape is not something to be made light of, but the similarities in predatory nature of the IMF and the alleged crimes are striking.