Category Archives: Econ & Money

NYT Upshot Agrees

Euro Crisis: The Greek Deal Is a Disaster for Greece, and Maybe for Europe:

On Monday, there was yet another deal. But this time it is one that pushes Greece into the abyss, even if financial markets don’t acknowledge it just yet and even if what happens next is deeply uncertain.

…Just a week ago, its voters overwhelmingly rejected a bailout offer that was less punitive than the one its leaders just accepted.

Yet the deal that Greek leaders and their creditors reached Monday morning after a brutal series of overnight talks promise to deepen political and economic strains in a country already in depression.

And this, oh yes this:

France “won” in the sense that the unraveling of the eurozone did not happen on July 13, 2015. But it came at the cost of policies that make it less likely that will be the case one, six, or 12 months from now.

If this counts as a victory for the European project, it is hard to imagine what a defeat would look like.

Why are the financial markets up on this? Gangrene is better than amputation? Why should the stock markets be happy that bond vultures were (temporarily) saved at the expense of the real economy?

Posted in Econ & Money, Politics: International | 1 Comment

The Bonds of July

The sources of the Europe/Greek disaster are plain, and quickly seen in these two short posts:

Kevin Drum, Europe’s Message to Greece: Don’t Let the Door Hit You On Your Way Out, summarizes just how much Germany et al have demanded of Greece, including this excellent quote from that bastion of anarcho-liberalism, the Wall Street Journal:

Sunday’s statement on Greece by eurozone finance ministers will go down as one of the most brutal diplomatic démarches in the history of the European Union, a bloc built to foster peace and harmony that is now publicly threatening one of its own with ruination unless it surrenders.

….The other 18 euro members were late Sunday pushing Greece to implement all of the austerity measures and broader economic overhauls its voters have twice rejected—in elections in January and in a referendum on July 5—not in return for new rescue loans, but as a precondition for even talking about them.

Not that there isn’t plenty of blame to go round to the Greek side also, as Yves Smith reminds us in “Greece Brought a Latte to a Gunfight”:

Yanis appears to have assumed that he could grasp the European light on the hill and persuade with elegant reason all of Europe to embrace enlightened super-national consciousness. He’s been genteelly sipping lattes at a gunfight and by doing so has played right into realist German hands by destroying his country’s economy as an example to all other European ‘dead beats’.

There is nothing new here. Yanis has simply been outplayed. When it was elected, Syriza either had to sign up to new terms of austerity or immediately leave the euro. It’s stylish five month congress with Europe has ruined its economy to no purpose of its own given it will either now buckle under to even deeper austerity or will still be forced out of the euro, taking its economy from wrecked to destroyed.

As for me, either Europe will provide subsidies under the table and quickly (unlikely!) or I still say that Grexit is coming.

Posted in Econ & Money, Politics: International | Leave a comment

Versailles Without the War

Dr Johannes Bell signs the Treaty of Versailles in the Hall of Mirrors, with the various Allied delegations sitting and standing in front of him. (Wikimedia)

Dr Johannes Bell signs the Treaty of Versailles in the Hall of Mirrors, with the various Allied delegations sitting and standing in front of him. (Wikimedia)

The Greek deal is a vicious blunder. Yves Smith:

The cost of Greece avoiding a Grexit is submitting to becoming an economic serf of the Eurozone, subject to even more draconian austerity than was ever on the table before. … The Greek government still has to pass four bills by the 15th and another two by the 22nd to comply. It’s not clear that that will take place.

…. This deal is simply vicious. This is far and away the most one-sided agreement I’ve ever seen, by an insanely large margin. Even the language is shamelessly punitive. For instance, the document repeatedly mentions that all the previous terms under consideration will need to be made vastly more stringent in light of the deterioration of the economy and how the Greek government needs to prostrate itself to gain the trust of the creditors.

This deal appears to be designed to prolong long-term pain without doing much for the short-term. It’s a dagger in the guts of Europe. What a tragedy.

Not even a token haircut for the creidtors: bonds win, everyone else, including the non-Greek members of the EU (not least Germany) loses. Only problem is that the Germans don’t seem to see what this will cost them politically in the long run. #ThisIsACoup indeed.

Watching this train wreck happen for the last month(s) has been the closest thing in my life to what I imagine it must have felt like to follow the developments leading up to the start of World War I: inexorable stupidity meeting inflexible rigidity, all in fairly slow motion. And of course it’s not close to over.

Posted in Econ & Money, Politics: International | 1 Comment

Krugmania

Awesome!

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Nutty, Even By Relaxed Modern Standards

TPM, With Eye on Fiscal Armageddon, Texas Set to ‘Repatriate’ Its Gold To New Texas Fort Knox.

On Friday, Gov. Greg Abbott signed legislation that will create a state-run gold depository in the Lone Star State – one that will attempt to rival those operated by the U.S. government inside Fort Knox and the Federal Reserve Bank of New York’s vault in lower Manhattan. “The Texas Bullion Depository,” Abbott said in a statement, “will become the first state-level facility of its kind in the nation, increasing the security and stability of our gold reserves and keeping taxpayer funds from leaving Texas to pay for fees to store gold in facilities outside our state.” Soon, Abbott’s office said, the state “will repatriate $1 billion of gold bullion ((As you will see if you read the article, this is malarky. There is no such $1 billion in gold from the Federal Reserve in New York to Texas.” In other words, when it comes preparing for the currency collapse and financial armeggedon, Abbott’s office really seems to think Texas is a whole ‘nother country

Just read it. And weep.

PS. Bonus crazy:

Indeed, Texas has no gold bars in the Federal Reserve’s New York vault. And what the state has is not worth a billion dollars. Instead some 4,200 gold bars bought in 2011 by the University of Texas’s endowment fund (the second largest in the country after Harvard’s) are stored in the basement vault of HSBC’s headquarters at 450 5th Avenue in New York City, just south of the New York Public Library. For the last four years, the endowment has paid an estimated $1 million per year to store their gold there. (If it had been at the New York Fed the cost would have totaled about $15,400 over that period). And the new depository law does not require the university’s endowment fund to relocate the gold to Texas.

How did UT end up holding actual gold?

In 2010 and 2011, … the University of Texas Investment Management Company’s board of directors … put nearly 5% of the then-$19 billion university and pension fund they manage into physical gold by converting options into bullion. …

When the endowment fund bought the gold, their basis for calculating a return – called their cost basis – was $1,150.17 per ounce. The fund eventually traded a third of their physical gold stake for gold futures and other equities, but never reduced their overall exposure to gold. That’s why they still own about 4,200 bars worth just under $500 million. After a significant run-up and subsequent fall in 2012, gold traded on Monday at $1,186. Over more than four years that just a 3% gain for the fund before you account for the cost of housing the gold in New York [which is $1 million / year] and the transaction costs that will be incurred if and when the endowment fund ships the bars back to Texas or sells them to a buyer. Over the same period, the S&P 500 index – a broad measure of owning stocks – gained 60%.

Posted in Econ & Money, Politics: The Party of Sleaze, Politics: Tinfoil | 3 Comments

The Past Isn’t Even Past

I remember it well:

Editor’s Preamble! Back in 1997 I gave a paper on crowdfunding – I believe the first ever proper paper, although there was one "lost talk" earlier by Eric Hughes – at Financial Cryptography 1997. Now, this conference was the first polymath event in the space, and probably the only one in the space, but that story is another day. Because this was a polymath event, law professor who’s name escapes Michael Froomkin stood up and asked why I hadn’t analysed the crowdfunding system from the point of view of transaction economics.

I blathered – because I’d not heard of it! But I took the cue, went home and read the Ronald Coase paper, and some of his other stuff, and ploughed through the immensely sticky earth of Williamson. Who later joined Coase as a Nobel Laureate.

The prof was right, and I and a few others then turned transaction cost discussion into a cypherpunk topic. Of course, we were one or two decades too early, and hence it all died.

Now, with gusto, Vinay Gupta has revived it all as an explanation of why the blockchain works.

Financial Cryptography: Coase's Blockchain – the first half block – Vinay Gupta explains triple entry.

Posted in Cryptography, Econ & Money | Leave a comment

Dangerous Radicals

I was getting annoyed at my radio this morning, as the dulcet-toned pseudo-liberals on NPR called the Greek Government “radical left”. Why is a simple request for rescheduling/partial write-off of debt repayment so radical? It is just basic neo-Keynsian economics. Fact-based and thus liberal, yes, but hardly “left-wing” much less radical.

Krugman explains. And now I understand.

Posted in Econ & Money | 2 Comments