continues to rally despite the clear fact that the Eurozone is a disaster. It’s
strange than grown adults can actually be discussing another Greek bailout when the first one was just one year ago and
accomplished nothing. Of course, if the world traded based on fundamentals or
common sense, the Euro wouldn’t even exist at this point.
At the heart
of this entire situation is the key relationship that determines all economic
policy: the relationship between banks and politicians. Most voters in
developed countries continue to believe that their vote has some kind of
influence in politicians’ decisions. They believe that they somehow can effect
change at the ballot box.
is that elections are largely for show these days. Politicians openly sell out
their constituents to corporate donors, particularly banks, whether it be by
directly taking large donations/ bribes or by appointing ex-bankers and other
financial stooges to key decision making positions.
when was the last time some politician picked an engineer or doctor or someone
who might actually know anything about… well anything to a position of power? Try never.
politicians surround themselves with run of the mill financial stooges. Take
the US where we allow guys who have rendered entire institutions (and
endowments) bankrupt to be key economic decision makers. Heck, we even allow
these types to “regulate” their former employers.
situation is no better in Europe. Angela Merkel tries to maintain the illusion
that she somehow will do the right thing (tell Greek bond holders to shove it)
but in the end she always buckles. Why? Because German banks are on the hook
for $65 billion worth of Greece’s debt.
And whenever she comes close to telling them to take a hit, someone
calls her up and tells her that if she does this the bank will implode.
perfect circle of influence: banks back politicians who once in office dish out
the goodies/ handouts. And if the banks screw up, they threaten to take down
the financial system, thereby destroying the politician’s chance at
All in all
the banks have done leverage buyouts of Government. The leverage is political
in nature (“screw us and we’ll take you down”). The buyout is in the form of
primary problem with this system (aside from the fact it’s completely immoral)
is that there are no consequences for bad decisions for the banks. Thus, they
keep making bigger and bigger bets using more and more leverage thereby
increasing systemic risk.
derivatives market which now stands north of $600 TRILLION in size. How do you
think this was allowed to happen? The banks pushed the politicians into rolling
back regulation, the banks then went nuts, and now the entire financial system
is in jeopardy.
already had a taste of this in 2008 when the Credit Default Swap (CDS) market,
which was $50-60 trillion in size, blew up. We’re now rapidly heading towards
an interest rate Crisis and the interest rate-based derivative market is four
times as large roughly $200 TRILLION.
This is what
happens when no one gets punished for screwing up, the screw-ups get bigger and
bigger. And this time around the screw up will involve entire countries going
belly-up (see Greece).
happening in Europe. Whether or not Greece gets another bailout is irrelevant.
The European banking system is collapsing. And it’s going to spread to the US
in short order.
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