Italy’s on fire right now, with yields on its 10-year bonds now above the danger mark of 7% and a record spread over the German benchmark of 5.55%. It wasn’t supposed to be this way: after Greece, Ireland and Portugal, Spain was supposed to be next up in the line of fire. Now I see Spain as a naughty sibling, trying nervously to evade notice in the shadows as its older brother Italy gets chewed out by the markets. But don’t let the press coverage fool you: Spain is still in deep, deep mierda. And while Italy’s bond markets may be much bigger, in some ways Spain has less hope for redemption. Here’s why: Continue Reading
Politicians, Treasury Secretaries, etc. would have you believe that “moral hazard” is something we should only worry about in the abstract, in the future, when they’ve moved on to another job. But now a study confirms with hard facts: moral hazard–it lives.
Researchers have asked for some time whether and how bailouts might affect banks’ risk-taking. Would they run wild, aware of the high likelihood of being bailed out again if they ran into trouble? Or would they ease off precisely because they’d now be assured of lower financing costs and long-term survival, and therefore would want to avoid doing anything that might cause regulators to take that valuable banking license away? More daring or more discipline?
Each of these camps had its underpinnings yet the question was a difficult one to study. Why? Because, generally speaking, the developed Western countries didn’t really do bank bail-outs. [Insert smirk here.]
But then came 2008 and its bailout-palooza. And so, thanks to hundreds of billions of taxpayer dollars and an alphabet-soup of bank welfare programs, this question can now benefit from the availability of real-life, empirical data. (Cloud, silver lining and all that.)
We have the latest news from the wandering monster known as the European Financial Stability Fund. You may recall eurozone leaders’ admission last month that EFSF’s current lending capacity of €440 billion was nowhere big enough to deal with the coming tidal wave that might be the destabilization of the Italian debt market (the 3rd largest sovereign market in the world). We now have
clearer details of the two proposals on the table for leveraging the EFSF to the neighborhood of €1 trillion:
- an SPV through which stable eurozone countries could provide investors with partial guarantees on the debt of troubled sovereigns
- one or more co-investment funds that might entice private and non-euro investors to go halfsies with stable eurozone countries to buy the troubled debt
The Occupy Wall Street movement kicked off the global Occupy movement and targets a brand that almost everyone in the world knows and understands–Wall Street. Yet close attention should be paid to the evolution of the Occupy dialogue in London where protesters, because they could not take the nearby London Stock Exchange, are camped out on the steps of the the famous St. Paul’s Cathedral. Here’s why I think Occupy London is critical:
- It’s London, not New York, that’s considered by many to be the true financial capital of the world. It’s certainly the capital of the largest financial market–the foreign exchange market that turns over almost $4 trillion daily.
- The UK’s economy is even more influenced by the financial services industry than the U.S. Financial services add more value to the UK’s GDP (9% vs. 8% for the US.)
- Their very choice of location forces the issues they raise to be sharply framed by questions of ethics, morality and social justice.
Now their progress hasn’t been straightforward. But they recently won a victory when they succeeded in having an eviction called off and also inspired a few high-ranking clergy members to resign in support of their right to stay. So when thinking about whether the Occupy movement could have a long-lasting effect on the way we view finance, capitalism and economic justice, Occupy London could be the bellwether. Continue Reading
In case you missed them, here are our most popular posts from the past week plus an awesome GIF:
- Greece gets set to Occupy Wall Street. Greece prime minister George Papandreou’s plan to hold a referendum on the latest Greek bail-out hit like a tornado at a garden party.
- U.S. Postal Service saved by new foreclosure initiative. Looks like the Feds are getting into the junk mail business. Or what else could you call the new Independent Foreclosure Review process?
- Taxes are for suckers. Presenting: How to avoid paying taxes like a (corporate) boss.
- Don’t celebrate U.S. banks just yet. While there have been no major convulsions yet, isn’t it a bit too early to sound the all clear on U.S. banks?
- Goldman’s good citizenship fail. I got a right good chuckle out of the ol’ Vampire Squid after reading an odd little article in this weekend’s Financial Times.
GIF of the Week: Everyone needs a little push now and then