Category Archives: Free markets and their discontents

EU Leaders Threaten Greece With Expulsion From the Eurozone

If you had any doubts about the intent of the Eurobailouts, the latest news should settle them. The game plan was to severely limit Greek sovereignity and assert the primacy of creditor rights, even if they came at the expense of democracy. Greece, as we described in a post earlier today, threatened to blow up the bailout by having a referendum. That measure, even if it took place before year end, would create massive uncertainty and wreak havoc with other efforts (for instance, getting China to contribute cash to the levered EFSF, the bailout funding vehicle. As we’ve detailed in earlier posts, it is unworkable in the absence either of ECB backing or substantial outside funding).

The Eurocrats have decided to try to push Greece into line, threatening expulsion from the Euro (note, not the EU) if Greece does not back down.

Philip Pilkington: My European Nightmare – An Infernal Hurricane Gathers?

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

The infernal hurricane that never rests
Hurtles the spirits onward in its rapine;
Whirling them round, and smiting, it molests them.

– Dante, The Divine Comedy

Every now and then a terrible thought enters my mind. It runs like this: what if the theatre of the Eurocrisis is really and truly a political power-game being cynically played by politicians from the core while the periphery burns?

Yes, of course, we can engage in polemic and say that such is the case. But in doing so we are trying to stoke emotion and generally allowing our rhetorical flourish to carry the argument. At least, that is what I thought. I had heard this rhetoric; I had engaged in it to some extent myself; but I had never really believed it. Only once or twice, in my nightmares, I had thought that, maybe, just maybe, it might have some truth.

And then the Financial Times published this ‘strictly confidential’ document leaked to them from within the Eurostructure. That is when my nightmare started becoming increasingly real.

The Verboten Story of Argentina’s Post-Default Economic Success

Even notice nothing is ever said in the mainstream media about Argentina’s economy, save that it had a big default? You’d never know the following about Argentina:

Eurozone Rescue Going Off the Rails

In the runup to the crisis, it was striking to read the undertone of worry in quite a few of the articles in the Financial Times, and I don’t mean only Gillian Tett’s fixation on collateralized debt obligations. It was palpable that a lot of writers were uncomfortable with how frothy the markets were, yet couldn’t say anything too much at odds with what their largely cheerleading sources were telling them.

Even though the overall mood at this juncture is far more downbeat, there is again a reporting gap between the pink paper and the two major US print business outlets, the Wall Street Journal and the New York Times on the expected crisis nexus, the Eurozone.

Eurozone Leaders Ready €80 Billion Band-Aid for Banking Industry Gunshot Wound

I must confess I don’t stay on top of the blow by blow of the ever-devolving Eurozone mess. The broad lines of the trajectory look all too predictable. The officialdom could patch up things for quite a while if the powers that be let the ECB monetize the debt (eventually, you could have an inflation problem, but with the EU and global economy so slack, “eventually” will take quite a while to show up).

However,everyone in positions of authority seems to believe in certain-to-fail-much-faster austerity instead. So the permissible short-to-medium term fixes involves lots of complicated programs, multi-party negotiations, and in some cases, political approvals. The timeline for the governmental maneuvering seems badly out of line with what Mr. Market requires. And to make matters worse, an earlier deal on a Greek funding, which involved bondholders taking a 21% haircut, is now deemed not to be punitive enough to banks. While that is narrowly true, having this deal come unglued could be the detonator that sets off a crisis chain reaction.

And from a wider vantage, none of these remedies address the real issue

Energy Efficiency Doesn’t Work

By Cameron Murray, a professional economist with a background in property development, environmental economics research and economic regulation. Cross posted from MacroBusiness

The word efficiency carries a meaning immersed in all things positive – you never hear that being more efficient could possibly be detrimental. In fact, if you can bear the evangelical fervour, you may have read about achieving ‘Factor Four’ or ‘Factor Five’ gains in energy efficiency, as part of a ‘Natural Capital’ revolution comprising a ‘decoupling’ economic growth from a growth in the consumption of exhaustible resources – also known as ‘sustainability’. You may even have heard about the equation I=PAT or I = P x A x T, where environmental impact (I) is a function of population (P), affluence (A) and technology (T), and that becoming more efficient will enable a desired level of affluence with far less environmental cost.

Historical experience shows that these claims are untrue.

Rob Parenteau: Blinded by Faith – Sinking the Eurozone

By Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of The Richebacher Letter, and a research associate of The Levy Economics Institute

Wolfgang Munchau has raised a very important point in his current Financial Times article, “Why Europe’s officials lose sight of the big picture.” The eurozone, Wolfgang points out, is more like a large closed economy than a collection of small open economies, and this has implications for fiscal policy outcomes, yet these implications remain largely unrecognized by policy makers within the region. Wolfgang noted:

Steve Rattner, Card Carrying Member of Top 1%, Tells Us We Should Lie Back and Enjoy Much Lower Wages Resulting From Globalization

A corollary to Upton Sinclair’s famous saying, “It is difficult to get a man to understand something if his salary depends on his not understanding it” is “People promote ideas that help them secure or preserve a privileged position on the totem pole.”

A glaring example of these observations came in an op ed in the Sunday New York Times by Steve Rattner, former Lazard mergers & acquisition partner, later head of the private equity firm, Quadrangle Partners. He is best known as the chief negotiator in the auto bailouts (and he was criticized for not involving any auto industry experts). He paid $10 million to settle a kickbacks investigation and agreed not to work for a public pension fund in any role for five years. I happened to see Rattner on a panel at a Financial Times conference earlier this week and he elaborated on some of the themes in this piece, “Let’s Admit It: Globalization Has Losers,” which reader Brett asked me to debunk line by line. I’ll spare you and focus just on the most critical and bald-facedly dishonest bits.

Warning: Greece Can Break Glass and Leave the Eurozone

One of the things that has been intriguing about the handwringing among European policy-makers has been the general refusal to consider the idea that one of the countries being wrung dry by doomed-to-fail austerity programs might just pack up and quit the Eurozone. The assumptions have been three fold. One is a knee-jerk assumption that the costs of exiting are prohibitive (this argument comes from Serious Economists in Europe, but they never compare it to the hard costs of austerity and the less readily measured but no less real cost of loss of sovereignity). Second is that an exit would come via a country being expelled, since the Eurozone treaties prohibit unilateral departure. Third is that it would be too much of an operational mess to revive a defunct currency.

A very good piece by Floyd Norris in the New York Times fills this gap by describing that Greece has the motivation and the means to leave.