The BillyB, Aster & JR8 roundtable!

[JR8]

This just in from NewsBiscuit
<satire>

========================
'Greece dresses troops in German uniforms and reverse-invades self

Greece has taken radical steps to solve its debt crisis, by declaring itself to be annexed to Germany. Greek prime minister George Papandreou offered a complete and unequivocal surrender to a surprised Angela Merkel, who at first pretended not to be in.

There are fears that ‘invasion contagion’ could spread to Spain, Portugal and Ireland, but the UN has so far refused to condemn the imaginary military action. “We’re considering a Resolution to impose a theoretical no-fly zone, but to be honest, we’re struggling to build support”

[BillyB]

As you probably are aware, many ex-bankers move into politics, work for the Fed and the regulators.

Well, I'd regard the BOE and FSA as quangos rather than politics as such. I mean look at the previous Labour cabinet, and current Tory one, and count on the fingers of one hand how many of them have worked in Finance. Not very many. In fact most of them are financially illiterate. The only one I probably honestly look up to for financial insight and just that kinda aura of extreme intelligence coupled with humility is John Redwood.


My point was more slanted toward the U.S, as we are quite accustomed to any changes originating over there and having a ripple effect across the pond to the U.K.

I do concur with your quango view about the U.K financial set-up. But can't a quango, by its very nature, be given carte blanche as it falls outside of government or is merely a 'loosely' governed extension?
But what is your take on 'Sir'Mervyn King in all this? He obviously holds a high degree of power and control in the U.K on the economic side of things, but didn't he get heavily involved in the political parties budget plans and cuts, post credit crunch? I found it quite ironic, for an incredibly intelligent and credible academic, he didn't see the bubble coming!

I agree with the latter part of your paragraph about most in power in the U.K being financially inept, and would go one step further and add - commercially clueless too.

They work with, and pay handsomely, top academics who commission research papers supporting the self interested views of the bankers. E.g. Iceland dereg, concluding there is no need for derivatives regulation etc.

The highest level decision makers are unfortunately an exclusive and very powerful elite.

This I agree with. But if increasing regulation of the derivative markets would fall under their control how would that change anything? And if they are are unaccountable (not voted in, not selected via Select Committees etc) then how might they be accountable to people who actually understand these products?

It is a tough one, but I don't see shutting down the derivative markets to specualtion is an answer.

Why would they care? They don't want to be accountable. There was a big push years ago for tighter regulation but it got rejected across all the key decision groups - which were, surprisingly, made up of current and ex-staff from the very banks who make the largest gains from these products. There is far too much self-interest and opportunity to make piles of cash.

I'm not suggesting the deriv's market needs shutting down, just tighter controls on leverage / margin, greater transparency and more universal pricing mechanisms. But too much regulation would probably see them pushed offshore - I don't know? Its a balancing act but it does need addressing.

The problem is, and many people don't understand this, derivatives aren't an investment per se. It's speculation which ever way you look at it. There is always a winner and loser. And for each big winner, there is a big loser. The main point of a derivative used to be to hedge a portfolio - currency forwards, IRS etc. Nowadays they are used for anything but. It's caused volatility and uncertainty, and despite the fact they caused / magnified the financial crisis in 2008, nothing has been done to prevent a repeat and the deriv's market continues to grow. Defies belief really.

[JR8]

My point was more slanted toward the U.S, as we are quite accustomed to any changes originating over there and having a ripple effect across the pond to the U.K.

OIC, yes

I do concur with your quango view about the U.K financial set-up. But can't a quango, by its very nature, be given carte blanche as it falls outside of government or is merely a 'loosely' governed extension?


I suppose my point was therefore 'technically quangos are not political as they are not democratic. Idealism perhaps, you are of course right.

But what is your take on 'Sir'Mervyn King in all this? He obviously holds a high degree of power and control in the U.K on the economic side of things, but didn't he get heavily involved in the political parties budget plans and cuts, post credit crunch? I found it quite ironic, for an incredibly intelligent and credible academic, he didn't see the bubble coming!

None of them ever do though do they? Maybe they are too intoxicated by sitting on the throne of the apparent golden kingdom that they have created?


Why would they care? They don't want to be accountable. There was a big push years ago for tighter regulation but it got rejected across all the key decision groups - which were, surprisingly, made up of current and ex-staff from the very banks who make the largest gains from these products. There is far too much self-interest and opportunity to make piles of cash.

Ok, but given what you have just said who realistically is going to bring about and maintain this tighter regulation?

I'm not suggesting the deriv's market needs shutting down, just tighter controls on leverage / margin, greater transparency and more universal pricing mechanisms. But too much regulation would probably see them pushed offshore - I don't know? Its a balancing act but it does need addressing.

The SG MOF used to get daily risk reports of our various positions on OTC products (even back in the mid-90s). As they did from all other banks. I wonder if such reporting exists in the UK or elsewhere?

The problem is, and many people don't understand this, derivatives aren't an investment per se. It's speculation which ever way you look at it. There is always a winner and loser. And for each big winner, there is a big loser. The main point of a derivative used to be to hedge a portfolio - currency forwards, IRS etc. Nowadays they are used for anything but. It's caused volatility and uncertainty, and despite the fact they caused / magnified the financial crisis in 2008, nothing has been done to prevent a repeat and the deriv's market continues to grow. Defies belief really.

How would you separate the hedgers from the speculators?

Hey, apparently the European Commission knew in 2004 that Greece massively faked their financial stats from 1997-2003 in order to get into the euro. And what do you think they did about it subsequently apart from nothing? Now that defies belief don't you think.

[/quote]

Edit to add a missed point:
What do I think of King? I think he can only be a virtual co-conspirator and that he is the master of the unspoken attempt to deflate away debt via 0.5% interest rates and 5% inflation. UK savers are being permanently crucified... it's a tragedy, as you hardly instill self-reliance (or the Big Society') in this way.

Sorry edit 2, a point I missed. (Long day, V tired!)
There have been no spending cuts in the UK. Despite growing tax revenues, state borrowing is higher YOY than a year ago. You could argue that the Tories are increasing borrowing and spending during and despite bad times. How contrary to their rhetoric eh?

[JR8]

'Now for the tragedy. Greece's entry was based on a false prospectus, as the European Commission admitted in 2004: "It is clear Greece would not have joined the euro with the figures we have now." Greece hid massive budget deficits between 1997 and 2003 by understating military spending, exaggerating VAT receipts and overestimating social security surpluses. Thereafter, while the Brussels elite was suspending disbelief, the Greeks were borrowing cheaply, paying themselves lavishly and spending uncontrollably. The state became a vehicle for pillage and patronage. Dionysos, god of parties and pleasure, had his day.'
http://www.telegraph.co.uk/finance/comm ... rbles.html

[greydalg]

wooo seems like i only stumbled upon this three-way roundtable only, how did i miss it!
wat do u think is going to happen at today's parliamentary vote? to be honest nothing's going to change especially when everything has been stagnant with only france offering to roll over the debt. but i question how rolling over the debt for another 30 yrs would do to change anything. harsh austerity cuts have to be made, thats about the only hopeful solution isn't it? iceland's done it and came through

[aster]

My oh my, apparently the biggest strike in Greece's history is about to begin. All sorts of people are heading to the streets as part of some "work avoidance scheme..."

Apparently air traffic controllers will be on strike, as will doctors, journalists (?!?), theatrical performers and probably loads more infected with this "laziness syndrome" that has swept the nation...

Nothing will help the Greeks I'm afraid, no cuts will do. They are too reliant on tourism to stay afloat, especially with everyone around pissed off at them and looking at better destinations to spend their time.

[BillyB]

My point was more slanted toward the U.S, as we are quite accustomed to any changes originating over there and having a ripple effect across the pond to the U.K.

OIC, yes

I do concur with your quango view about the U.K financial set-up. But can't a quango, by its very nature, be given carte blanche as it falls outside of government or is merely a 'loosely' governed extension?


I suppose my point was therefore 'technically quangos are not political as they are not democratic. Idealism perhaps, you are of course right.

But what is your take on 'Sir'Mervyn King in all this? He obviously holds a high degree of power and control in the U.K on the economic side of things, but didn't he get heavily involved in the political parties budget plans and cuts, post credit crunch? I found it quite ironic, for an incredibly intelligent and credible academic, he didn't see the bubble coming!

None of them ever do though do they? Maybe they are too intoxicated by sitting on the throne of the apparent golden kingdom that they have created?


Ha ha, agree. The old adage of 'out of touch'. Amazingly, King has no commercial experience in the finance sector. Only as a pure academic / advisor. I think that approach is flawed somewhat.

Why would they care? They don't want to be accountable. There was a big push years ago for tighter regulation but it got rejected across all the key decision groups - which were, surprisingly, made up of current and ex-staff from the very banks who make the largest gains from these products. There is far too much self-interest and opportunity to make piles of cash.

Ok, but given what you have just said who realistically is going to bring about and maintain this tighter regulation?

It needs someone who isn't afraid of the banks and the power they yield. Someone who is headstrong enough to see beyond the short-term revenues it brings the Country in taxation, for long-term stability. Obama was making the right noises. I could have seen someone like Vince Cable making inroads. Party Cameron have bottled it and things seem to have barely changed under them.

I'm not suggesting the deriv's market needs shutting down, just tighter controls on leverage / margin, greater transparency and more universal pricing mechanisms. But too much regulation would probably see them pushed offshore - I don't know? Its a balancing act but it does need addressing.

The SG MOF used to get daily risk reports of our various positions on OTC products (even back in the mid-90s). As they did from all other banks. I wonder if such reporting exists in the UK or elsewhere?

This is a good point. Obviously compliance and risk exist in all institutions and positions are reported at opening, during markets and close. But it can always be manipulated to some extent. I honestly don't know enough about the technicalities to be able to suggest anything useful. I've always held the view that most products clear in the same way, need / receive a bit of cash for margin and tended to be ignorant to the intricacies of middle and back office. Once the order has gone, that's when I turn off.

The problem is, and many people don't understand this, derivatives aren't an investment per se. It's speculation which ever way you look at it. There is always a winner and loser. And for each big winner, there is a big loser. The main point of a derivative used to be to hedge a portfolio - currency forwards, IRS etc. Nowadays they are used for anything but. It's caused volatility and uncertainty, and despite the fact they caused / magnified the financial crisis in 2008, nothing has been done to prevent a repeat and the deriv's market continues to grow. Defies belief really.

How would you separate the hedgers from the speculators?

You could probably dress one in a devils outfit and one in a halo??!! They are both inextricably linked, that's the issue. Both need each other for the markets to function properly.

Hey, apparently the European Commission knew in 2004 that Greece massively faked their financial stats from 1997-2003 in order to get into the euro. And what do you think they did about it subsequently apart from nothing? Now that defies belief don't you think.

China have also been doing it for years but for very different reasons!

Edit to add a missed point:
What do I think of King? I think he can only be a virtual co-conspirator and that he is the master of the unspoken attempt to deflate away debt via 0.5% interest rates and 5% inflation. UK savers are being permanently crucified... it's a tragedy, as you hardly instill self-reliance (or the Big Society') in this way.

Sorry edit 2, a point I missed. (Long day, V tired!)
There have been no spending cuts in the UK. Despite growing tax revenues, state borrowing is higher YOY than a year ago. You could argue that the Tories are increasing borrowing and spending during and despite bad times. How contrary to their rhetoric eh?[/quote]

[JR8]

wooo seems like i only stumbled upon this three-way roundtable only, how did i miss it!
wat do u think is going to happen at today's parliamentary vote? to be honest nothing's going to change especially when everything has been stagnant with only france offering to roll over the debt. but i question how rolling over the debt for another 30 yrs would do to change anything. harsh austerity cuts have to be made, thats about the only hopeful solution isn't it? iceland's done it and came through

Welcome greydalg, pull up a chair and we'll get another round of beers in

It could go either way, but it matters not one jot. They're just kicking the can further down the road and the kicking is being funded by EU taxpayers.

I was amazed at the proposition of voluntary debt roll-overs, and could not see why bond-holders would agree to it, the additional risk for nil return. But today we see why, under Sarkozy's plan the rolled-over bonds are going to be backed by the EU (the taxpayer). Surely it is no coincidence that the big four French banks were put on Moody's negative watch list just two weeks ago! Jeez British taxpayers paying to keep French banks afloat with funds laundered via Athens.

Even with 100% austerity Greece cannot pay it's debts. The only option is default, (the other is the EU making an outright gift of euro300bn to it, but that happening any time this century). It is only question of when.

It is a case of the inevitable being delayed so that the next dominoes in the contagion can prepare damage limitation.

p.s. Iceland did it by letting banks fail. It seems failure is not allowed in the EU though. Is this the death of risk as we know it?

[aster]

So what happens after bailout #37 when Greece is finally allowed to default (and after everyone is already convinced thrice that they will default so it doesn't come as any surprise)?

What happens? Stock markets collapse just like they did in 2008?

[JR8]

So what happens after bailout #37 when Greece is finally allowed to default (and after everyone is already convinced thrice that they will default so it doesn't come as any surprise)?

Well I think the Germans and French are hoping that by then their domestic banks will have suitable risk mitigation and contingency plans in place. (And as usual the EU citizen doesn't get to vote on any of this being done at their expense).

[aster]

I hardly think the typical citizen needs to be bothered with referendums. What next, Swiss-style government and heads of state asking whether they can purchase a new cars, can it be metallic silver, can it have a CD-changer, etc.

[BillyB]

Here's something that made me laugh, particularly the quote from the Chinese Premier - "When Europe is in trouble, we lend a helping hand".

Always about saving face in lieu of the real truth - i.e. a massive exposure to European securities. Stinks of an indirect backhander to me. 'Come on Merkel, keep the support for the Euro coming to prop-up our exposure, and we'll throw in a few knock-off handbags once in a while'.

http://www.bbc.co.uk/news/business-13954148

[aster]

Why don't they do us all a favour and just buy... Greece? All 50,944 sq miles of it, citizens included.

Then the entire EU will feel like we were the ones who finally got one big, well-deserved BAIL OUT!

[JR8]

I hardly think the typical citizen needs to be bothered with referendums. What next, Swiss-style government and heads of state asking whether they can purchase a new cars, can it be metallic silver, can it have a CD-changer, etc.

'Marxist denounces democracy: shock!'

You're honestly equating people being denied an often promised referendum on membership of the EU, with some implied desire to vote on a politicians car options?

That's just downright childish.

[JR8]

Here's something that made me laugh, particularly the quote from the Chinese Premier - "When Europe is in trouble, we lend a helping hand".

Always about saving face in lieu of the real truth - i.e. a massive exposure to European securities. Stinks of an indirect backhander to me. 'Come on Merkel, keep the support for the Euro coming to prop-up our exposure, and we'll throw in a few knock-off handbags once in a while'.

http://www.bbc.co.uk/news/business-13954148

Yes it made me laugh too, the idea of the Chinese doing something like that charitably. Well, I suppose having bought Washington's ar$e (to the tune of $1.5tn) now is an opportunity to buy Brussel's.