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Usury Crisis Archives

May 16, 2012

Notes on the Crisis: Grexit edition.

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The Long Tedium of Euro Crisis perdures. It’s clear that Greek departure is a real possibility; it’s plausible that this brings down the whole euro as a currency; but it is also conceivable that for people sedulous in gaining actionable financial intelligence, trades into the new currencies — neo-drachma, neo-lira, neo-franc — are already extant, by means of synthetic sight-unseen derivatives trades.

Now and then we’re informed by pundits, or rather proffered an insinuation: that Greece is all tourism and street crime and communists. “They don’t make anything anyway.” Well, they do control some fifth of the world’s shipping in certain categories of vessel. What’s happened is not that the Greeks cannot, any longer, be a productive and enterprising people; it’s that their governments have promised them too much security and livelihood at public expense, combined with the detail that Greeks don’t pay taxes. So revenues do not match commitments and the borrowing power the euro provided only masked an underlying derangement.

Contrariwise some of my friends on the Right, I do insist on noticing that creditors to Greece were part of this derangement in a big way as well. One of those creditors, it turns out, was former New Jersey Governor and Senator, and former CEO of Goldman Sachs, Jon Corzine. His hotshot quasi-hedge fund sunk big capital into a bet that peripheral Eurozone debt would rebound because (one presumes) the ECB would finance its liquidity; but the hotshots really blundered and somehow (via fraud or incompetence) sunk unconsented client capital into this and similarly disastrous trades.

The US bank JPMorgan, meanwhile, labors under the bad press of its own disastrous trades. The distant inheritors of the great Morgan financial empire didn’t get caught plugging the holes in their balance sheet with client funds; but it’s plain that they got taken for suckers, whether in proprietary trading, hedging or whatever specificity your prefer.

In a now-familiar dynamic, all this uncertainty and volatility redounds to the benefit of the US Treasury. Treasury securities continue to sell like hotcakes. The US government can issue debt at historically low cost. Creditors are lining up to lend us their money.

I stand by my conviction that the amalgamation of commercial and investment banking has been a stupefying failure. Let me be more explicit: most of the bank deregulation of the 1990s (bills written by a GOP Congress and signed by Bill Clinton) should be repealed. The sooner we restore those old quarantines the better. The only reason I care that JPMorgan traders in London lost their shirts on synthetic credit derivative trades is that, like most very large conglomerate banks, JPMorgan is dependent on TBTF and the intimacy with government it implies. And one of the key foundations of that intimacy is JPMorgan’s enormous depositary unit being fused with its capital market prop trading units.

Let me note in passing that Eurozone banks are generally much bigger than ours. And half of them are nearly crippled by Greek, Spanish, Italian, Portuguese exposures. Even if, mirabile dictu, the US finance sector were cleansed of its insidious usury, we’d still be confronting a world full of TBTF banks, national champions, sovereign wealth funds, and mercantilism from Germany to China.

One thing I can predict with confidence is that the interesting times will persist.