The reigning chieftains of the 20 nations that make up 85% of global GDP issued another communique following a weekend of self-congratulations for saving the global financial system. Our friend Andrew Schreiber taught us that success has many fathers but failure is a mere orphan. The G20 statement certainly paid tribute to that with the following:
“Global recovery has progressed better than previously anticipated largely due to the G20’s unprecedented and concerted policy effort.”
What concerted effort are they referring to? 1. Passing the Doha agreement? 2. Curbing the growing trade friction between the developed world and the emerging economies? 3. The creation of a major GLOBAL stimulus package? 4. Resolution of the PIIGS debt crisis?
We just don’t know where the concerted success story lies and how this badly divided consortium can lay claim to the amelioration of the global recession. The final statement noticably was bereft of any finger pointing about currency manipulation. When asked about the Chinese currency, Treasury Secretary Geithner said it was a domestic issue for China and they would see it as being in their best interest for the yuan to be flexible. The biggest reported disagreement was regarding the issue of a global bank tax and raising of capital rules. The Canadians and other G20 nations that had a responsible financial sector are opposed to a one-size-fits-all solution. The U.S. and some of Europe are going to push for a comprehensive banking reform policy but we believe it is dead on arrival.
The Canadians are correct. Why should their banks be punished with greater austerity on capital when they behaved in a rational way? Their attitude is that Canadian banks should be rewarded with lower capital requirements because the Canadian system proved its worth. The issue going forward will be how much sovereignty the NATO-states are willing to surrender to an unelected global body. It’s interesting that the Greek Prime Minister raised that issue in a story in Monday’s Financial Times. George Papadreou said in a response to the EU/IMF bailout package that the Greeks asked for that it was”a partial surrender of sovereignty.”
Mr.Prime Minister, we have news for you. Greek sovereignty was surrendered upon entering the EU and the EURO. Nobody noticed as long as the the world economy was booming but when the music stopped you were without a seat at the table. Friday, after the Greeks officially asked for EU/IMF help, the EURO had a large rally as the market had become very short the EURO as apparently we had broken out of a well established range. That failed to last long and all the EURO crosses were also unwound. The pain of this headline-driven market is very real. If you are a trader make certain you know where you are wrong upon entering any trade and be loyal to your stops. We cannot emphasize that enough.
We will close in a quick word on Goldman. The only thing we care about is the impact of Goldman’s problems for the market and not on whether they are guilty of the accusations, for that is beyond our knowledge. If Goldman’s problem leads to an orgy of ill-thought regulation, then the fallout for global markets will be severe. How it all plays out will be decided over time but as our friend JA has pointed out, this a supervisory problem rather than calling for new regulation. The only action we would favor would be reinstalling the Glass-Steagall Act and for the derivatives market to be made very transparent. The only question we raise in jest is a tribute to Senator Proxmire and that is if someone will create a GOLDMAN FLEECE award.——Yra
April 25, 2010 at 9:40 pm |
Did you have any response to the rating agency hearings? The problem with the system is deeper than Goldman’s taking advantage of the combination of greed and incompetence; the rating agencies are enablers of and amplifiers of some of that problem. Whether supervision or regulation, or – my vote: let the rating agencies pay liability damages, there has to be something new done, or we’ll once again be revisiting the old.
April 26, 2010 at 5:36 am |
the whole issue of the rating agencies emanates from Orange County—after that debacle the banks needed a way to up returns on interest rate vehicles and still have a triple aaa rating to be able to sell thise crap to the wayne citron’s of the world and that is where it all begins—-the rest is commentary
April 26, 2010 at 5:52 am |
if you hold the ratings agencies accountable and subject to monetary damages- which would be true justice and some of them should have gone to jail- the problem would be that as a result of their possible monetary liability if something went wrong on their watch– the ensuing mindset would make it illegal for any trader to take a piss without first filling out documents and making the authorities cognizant of which urinal the piss will be taking place.
April 26, 2010 at 6:40 am |
chuck —i disagree .The burden would be great but the outcome would be that the types of securities brought to market would be much more transparent and understandable —but unfortunately it would impact wall street profitability.We both know that transparency leads to more efficient pricing .Also ,we would develope a securitization market that was similar to covered bonds where we could really know what assets underlied the bond