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amassafortune (29.16)

Simon Johnson - Economist



October 29, 2011 – Comments (2)



  Here is a discussion by Simon Johnson on large, international financial organizations and some of the challenges the world faces with these new dominant entities.

The presentation is here


Key points:

"How much is the German taxpayer willing to pay to keep Silvio Berlusconi in the lifestyle to which he has become accustomed to?"

Goldman Sachs will never fail, or at least would never be allowed to fail.

The U.S. is possibly at about the same point as it was in 1931.

Five top bankers walked away with $2+ billion personally, while transferring $7 trillion of risk to taxpayers.We continue to reinforce the moral hazard. The situation that allowed this has been largely left in place.

Bank accounting - risk-weighted assets - Greek debt is being used on balance sheets to justify and backstop leverage commonly greater than 30:1. 

"The world's financial system is not your friend."




2 Comments – Post Your Own

#1) On October 29, 2011 at 3:17 PM, binve (< 20) wrote:

Hey amass,

>>"The world's financial system is not your friend."

Exactly. Like I talk about in section 5 of this post, we do need a financial system but we only need one to perform a handful of functions and that is a tiny fraction of the size of the current system. The financialization of the world's developed economies is the second biggest impediment to economic growth and stability (rampant misunderstanding of how montary systems actually work is the first).

I am going to finish watching the video.

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#2) On October 29, 2011 at 4:06 PM, amassafortune (29.16) wrote:

As if on que, here are two new examples of why the world's financial system is not your friend.

Europe bailout fund chief courts China- Reuters

Repeated news leaks that a euro deal would come to pass have helped drive this market up over 10% in October. With the confirming news of a deal on Thursday, buy-the-rumor October was piled with a 'buy-the-news' reaction to the announcement.

Two major portions of the deal were Greek bond haircuts and levering up the 440 billion euro bailout fund. 

The euro stabilized in October and firmed up this week. This kept the dollar weak and most markets bounced positively. The desired market outcomes of this process have already appeared. 

We live in an age of bird-in-the-hand policies for the well-connected backed by two-in-the-bush delayed benefits for the general public. Trickle-down has been levered-up. 

So far, it doesn't seem to matter to the markets that a trillion euros of bonds, backed by good intentions of floundering soverign euro members, need to be sold to China (mostly) who has warned that they will not be easily convinced. 

It also doesn't seem to matter to the markets that the voluntary haircuts on Greek debt may not be voluntary and have not been agreed to. Nor does the market seem to care that credit default swaps on Greek debt may not be honored due to the 'voluntary' nature of the haircuts that have not been agreed to.

Was this deal negotiated in Wonderland? We have lived with similar distorted reality for over three years now, so who knows how far the markets will bounce on this deal that is not yet a deal.

Those who owned market assets on October 4th have done very well, especially for an earnings season that is confirming that a short-term top in corporate earnings is in place. To drive this market even higher, October's winners must decide to let the profits ride while the late-comers join the trend. Personally, I'll be raising cash soon. Buy the dip is working well, and unless the Fed announces QE3 next week, or the eurozone deal becomes a real deal, I think I'm going to need dip money by Thanksgivinig. 

The one glimmer that Alice's mushroom juice may be wearing off is that Bank of America is backing away from its recently-announced debit card fee increases. It appears they also took steps to delay account shrinkage. In this world of limitless backstopping of TBTFs, it's quaint that little customers might actually still matter.

Customers and the general public had become so pre-leverage, and to have a hint that they might still be relevant, well, it's ... it's nostalgic. Yes, nostalgic. Like seeing an elm tree on Elm Street. 

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