Niall Ferguson: "Greece Is The Symptom Not The Cause"

Tyler Durden — Sat, 26 May 2012 01:54:42 +0000

In a brief clip from a lengthier discussion between historian Niall Ferguson and ex-Greek PM George Papandreou at this week's Zeitgeist conference, the effusive Englishman lays out perfectly what many are missing with regard to Europe: "Greece is not the problem - it is a symptom of a much more profound malaise that affects the entire monetary union." - just as Lehman Brothers was not the 'cause' of the US's problems. The wasted energy spent moralizing about the 'work habits' of Mediterranean citizens as being the problem is incorrect as this is a European-wide problem - a systemic crisis of European banking and public finance. Papandreou pipes in by noting, in typical toe-the-line manner, that Germany must swerve (in the game of chicken) or there is a major danger of disintegration because "there will be contagion".

Solt Griechenland Weiter Am Euro Beteiligt Bleiben: Then And Now

Tyler Durden — Sat, 26 May 2012 01:18:43 +0000

On any other occasion, we would translate this title from the German into English, however at this point in the European lifecycle it is self-explanatory. A poll was conducted by Germany's ZDF today, asking many questions, but this one above all. The answers were then compared to a similar poll conducted six months ago. It is pretty clear which way Germany is leaning (certainly not the one suggested by a very clueless Peter Mandelson during the Munk Debates).

Source: ZDF

Germany Walks Away From Greece

testosteronepit — Sat, 26 May 2012 00:58:38 +0000

Wolf Richter www.testosteronepit.com

Preparing for Greece’s exit from the Eurozone has been picking up momentum and has reached critical mass—on the way to a fait accompli. Still unspeakable in public discussion last year, it has become a routine topic at all levels of government. While everyone at the very top still hues to the line that Greece should stay in the Eurozone, out of the other side of the mouth comes the but—especially since the focus is on Spain, the real problem, the one problem that the Eurozone will have trouble digesting.

Even if it could digest bailing out Spain or losing Spain, the next step up, Italy, due to its size, is beyond bailout and would cause the Eurozone to fracture into its component pieces—unless the ECB decides against all treaty limitations and stiff German opposition to monetize directly and without qualms any sovereign debt that needs to be monetized. And even that would tear up the Eurozone because Germany and a handful of other countries would refuse to be tied to that kind of loosey-goosey management of their currency.

There are political realities in Germany, where Chancellor Angela Merkel, slipping in the polls, is trying to decipher the scribbles on the wall. Her people, who vacation in Greece more than any other people, have handed her some clues: 60% said they wanted Greece out of the Eurozone, a jump from November when an already shocking 49% had wanted them out, according to a ZDF Politbarometer poll released Friday. Only 31% wanted Greece to remain in the Eurozone, down from 41% in November, with 9% not giving a hoot.

And Germans made short shrift of French President François Hollande’s favorite debt crisis panacea that he’d demanded from day one of his campaign, re-demanded at the G-8 in Chicago, and slammed on the table at the EU summit in Brussels earlier this week: Eurobonds. An astounding 79% were against them, and only 14% were for them.

Apparently, Germans have understood how insidious—insidious for Germans, but a great deal for debt-sinner countries—these bonds would be. They'd spread the risk of each country to all countries, but the last man standing, possibly Germany, would end up having to bear them all. They'd cut the borrowing costs for Greece (oops, scratch that), Spain, Italy, and a slew of other Eurozone countries but raise the costs for Germany—now zero on shorter term debt, and negative when adjusted for inflation. It didn't help that Bundesbank President Jens Weidmann vilified them in his quiet manner every chance he got, most recently when he said, "The belief that Eurobonds could solve the current crisis is an illusion."

But the next big battle may actually revolve around keeping Germany in the Eurozone: 50% of the respondents saw more disadvantages than advantages, up from 43% in February; only 45% saw more advantages, down from 51% in February. The more costs and risks rise for Germany, the more this number is going to skew away from the euro. A scary trend for Eurozone bailout freaks. And suddenly Germans woke up to the headline, "Greeks Pay less Taxes"—taxes being a sore subject for Germans who pay out of their noses to get their welfare-state budget into balance. For a debacle without equal, read.... The Confiscation Conundrum in Europe.

"The notoriously tax-sinning Greeks paid their government even less than before," the article began unnervingly. Turns out, Reuters had gotten two anonymous “senior” finance ministry officials to talk: Greeks were refusing to pay their taxes in euros in anticipation that they could soon pay them in drachmas, albeit with minor penalties. And lacking a government, they wanted to wait for the outcome of the next election on June 17, which hopefully would produce a government, any government. And so tax revenues in May were on track to drop 10%. Outside of Athens and Thessaloniki, tax revenues would fall between 15% and 30%. First capital flight then quiet bank runs, and now a refusal to pay taxes to a government they don’t have, in a currency they might not have much longer.... The Greeks are preparing for a reversion to the drachma, and they're trying, very understandably, and very smartly, to protect whatever they can—which, of course, simply speeds up the process of reverting to the drachma.

And when Germans were through with this article, the same Friday morning, they’re hit by the headline, “How the Greek Elite Stuff their Pockets,” an article about corruption in Greece. And so, at a conference in Berlin, Jürgen Fitschen, designated Co-Chairman of the gargantuan Deutsche Bank, said that there is no single solution for the euro debt crisis in part because the situation in Greece is so unique. Then he let it slip that Greece was a "failed state."

Thus, Europe has re-descended into rumor hell—where good rumors are head fakes that cause markets to rally, and where bad rumors, though passionately denied by all sides, turn out to be true. Read.... Rumors, Denials, and Visions of Chaos in the Eurozone.

And here is an awesome video by investment manager and author of Currency Wars, James Rickards—particularly in light of the euro crisis: Currency Wars – The Making of the next Global Crisis (video).

Presenting The Greatest ROI Opportunity Ever

Tyler Durden — Sat, 26 May 2012 00:46:15 +0000

The dream of virtually anyone who has ever traded even one share of stock has always been to generate above market returns, also known as alpha, preferably in a long-term horizon. Why? Because those who manage to return 30%, 20% even 10% above the S&P over the long run, become, all else equal (expert networks and collocated flow-frontrunning HFT boxes aside), legendary investors in the eyes of the general public, which brings the ancillary benefits of fame and fortune (usually in the form of 2 and 20). This is the ultimate goal of everyone who works on Wall Street. Yet, ironically, what most don't realize, is that these returns, or Returns On Investment (ROI), are absolutely meaningless when put side by side next to something few think about when considering investment returns.

Namely lobbying.

Because it is the ROIs for various forms of lobbying the put the compounded long-term returns of the market to absolute shame. As the following infographic demonstrates, ROIs on various lobbying efforts range from a whopping 5,900% (oil subsidies) to a gargantuan 77,500% (pharmaceuticals).

How are these mingboggling returns possible? Simple - because they appeal to the weakest link: the most corrupt, bribable, and infinitely greedy unit of modern society known as 'the politician'.

Yet who benefits from these tremendous arbitrage opportunities? Not you and I, that is for certain.

No - it is the faceless corporations - the IBM Stellar Sphere, the Microsoft Galaxy, Planet Starbucks - which are truly in the control nexus of modern society, and which, precisely courtesy of these lobbying "efforts", in which modest investments generate fantastic returns allowing the status quo to further entrench itself, take advantage of this biggest weakness of modern "developed" society to make the rich much richer (a/k/a that increasingly thinner sliver of society known as investors), who are the sole beneficiaries of this "Amazing ROI" - the stock market is merely one grand (and lately broken, and very much manipulated) distraction, to give everyone the impression the playing field is level.

Munk Debates Live: "Has The European Experiment Failed?" - Niall Ferguson And Others Dissect Today's Most Critical Issue

Tyler Durden — Fri, 25 May 2012 23:02:13 +0000

Today's most exciting piece of financial analysis and debate has been conveniently saved until early evening, when courtesy of BNN's "Munk Debates" we will get a great discussion on the number one topic of the times: whether the European experiment has failed. Arguing for the argument will be famed historian Niall Ferguson as well as Josef Joffe, while the contra side will be defended by Daniel Cohn-Bendit and Peter Mandelson. Courtesy of BNN: "In the sweep of human history, the European Union stands out as one of humankind's most ambitious endeavors. It encompasses half a billion people, twenty-seven member states, twenty-three languages and an economy valued at over $15 trillion. Modern Europe's stunning achievements aside, its sovereign debt crisis has shaken the world's largest political and economic union to its core. Can the federal institutions and shared values of Europeans meet the challenges of debt crisis that are as much political as economic? Or, are Europe's current woes indicative of a series of deep structural faults that will doom the European Union to breakup and failure?"

h/t cate_long

Guest Post: Keynesianism & Eugenics

Tyler Durden — Fri, 25 May 2012 21:55:57 +0000

Submitted by John Aziz of Azizonomics

Keynesianism & Eugenics

The theory of output as a whole, which is what The General Theory of Employment, Interest and Money purports to provide, is much more easily adapted to the conditions of a totalitarian state.
John Maynard Keynes

In looking at and assessing the economic paradigm of John Maynard Keynes — a man himself fixated on aggregates — we must look at the aggregate of his thought, and the aggregate of his ideology.

Keynes was not just an economist. Between 1937 and 1944 he served as the head of the Eugenics Society and once called eugenics ”the most important, significant and, I would add, genuine branch of sociology which exists.” And Keynes, we should add, understood that economics was a branch of sociology. So let’s be clear: Keynes thought eugenics was more important, more significant, and more genuine than economics.

Eugenics — or the control of reproduction — is a very old idea.

In The Republic, Plato advocated that the state should covertly control human reproduction:

You have in your house hunting-dogs and a number of pedigree cocks. Do not some prove better than the rest? Do you then breed from all indiscriminately, or are you careful to breed from the best? And, again, do you breed from the youngest or the oldest, or, so far as may be, from those in their prime? And if they are not thus bred, you expect, do you not, that your birds and hounds will greatly degenerate? And what of horses and other animals? Is it otherwise with them? How imperative, then, is our need of the highest skill in our rulers, if the principle holds also for mankind? The best men must cohabit with the best women in as many cases as possible and the worst with the worst in the fewest, and that the offspring of the one must be reared and that of the other not, if the flock is to be as perfect as possible. And the way in which all this is brought to pass must be unknown to any but the rulers, if, again, the herd of guardians is to be as free as possible from dissension. Certain ingenious lots, then, I suppose, must be devised so that the inferior man at each conjugation may blame chance and not the rulers and on the young men, surely, who excel in war and other pursuits we must bestow honors and prizes, and, in particular, the opportunity of more frequent intercourse with the women, which will at the same time be a plausible pretext for having them beget as many of the children as possible. And the children thus born will be taken over by the officials appointed for this.

Additionally, Plato advocated “disposing” with the offspring of the inferior:

The offspring of the inferior, and any of those of the other sort who are born defective, they will properly dispose of in secret, so that no one will know what has become of them. That is the condition of preserving the purity of the guardians’ breed.

In modernity, the idea appears to have reappeared in the work first of Thomas Malthus, and later that of Francis Galton.

Malthus noted:

It does not, however, seem impossible that by an attention to breed, a certain degree of improvement, similar to that among animals, might take place among men. Whether intellect could be communicated may be a matter of doubt: but size, strength, beauty, complexion, and perhaps even longevity are in a degree transmissible. As the human race could not be improved in this way, without condemning all the bad specimens to celibacy, it is not probable, that an attention to breed should ever become general.

Galton extended Malthus’ thoughts:

What nature does blindly, slowly and ruthlessly, man may do providently, quickly, and kindly. As it lies within his power, so it becomes his duty to work in that direction.

Margaret Sanger — the founder of Planned Parenthood — went even further, claiming that the state should prevent the “undeniably feeble-minded” from reproducing, and advocated “exterminating the Negro population”.

And these ideas — very simply, that the state should determine who should live, and who should die, and who should be allowed to reproduce — came to a head in the devastating eugenics policies of Hitler’s Reich, which removed around eleven million people — mostly Jews, gypsies, dissidents, homosexuals, and anyone who did not fit with the notion of an Aryan future — from the face of the Earth.

Of course, the biggest problem with eugenics is that human planning cannot really control nature. Mutation and randomness throw salt over the idea. No agency — even today in the era of genetics — has the ability to effectively determine who should and should not breed, and what kind of children they will have.

As Hayek noted:

The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society – a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.

Keynes’ interest in this topic appears to have descended from his contempt for the individual, and individual liberty. He once wrote:

Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these.

The common denominator in all of these examples — and in my view, the thing that brought Keynes toward eugenics — is the belief that the common individual is too stupid to be the captain of his own destiny. Instead, the state — supposedly equipped with the best minds and the best data — should centrally plan. Eugenicists believe that the state should centrally plan human reproduction, while Keynesians believe that the state should centrally engineer recovery from economic malaise through elevated spending. Although it would be unwise to accuse modern Keynesians of having sympathy for eugenics, the factor linking both of these camps together is John Maynard Keynes himself.

Keynes’ description of an economic depression — that a depression is a fall in the total economic output — is technically correct. And many modern Keynesian economists have made worthwhile contributions — Hyman Minsky, Steve Keen, Michael Hudson, and Joe Stiglitz are four examples . Even the polemicist Paul Krugman’s descriptive work on trade patterns and economic agglomeration is interesting and accurate.

The trouble seems to begin with prescriptions. Keynesianism dictates that the answer to an economic depression is an increase in state spending. And on the surface of it, an increase in state spending will lift the numbers. But will momentarily lifting the numbers genuinely help the economy? Not necessarily; the state could spend millions of dollars on subsidies for things that nobody wants, wasting time, effort, labour and taxes and thus destroying wealth. And the state can push a market into euphoria — just as Alan Greenspan did to the housing market — creating the next bubble and the next bust, requiring an even bigger bailout. State spending creates additional dependency on the state, and perverts the empirical market mechanism — the genuine underlying state of demand in a market economy — which signals to producers what to produce and not produce. Worst of all, centralist policies almost always have knock-on side-effects that no planner could foresee (causality is complicated).

So Hayek’s view on the insuperable limits to knowledge applies as much to the economic planner as it does to the central planner of human reproduction.

While eugenicists and Keynesians make correct descriptive observations — like the fact that certain qualities and traits are inheritable, or more simply that children are like their parents — their attempts to use the state as a mechanism to control these natural systems often turns out to be drastically worse than the natural systems that they seek to replace.

As Keynes seems to admit when — in the German language edition of his General Theory — he noted that the conditions of a totalitarian state may be more amenable to his economic theory, the desire for control may be the real story here.

Keynesianism brings more of the economy under the control of the state. It is a slow and creeping descent into dependency on the state. As we are seeing in Europe today, cuts in state spending in a state-dependent economy can cause deep economic contraction, providing the Keynesian more confirmation for his idea that the state should tax more, and spend more.

That is, until nature intervenes. Just as a state-controlled eugenics program might well spawn an inbred elite suffering hereditary illnesses as a result of a lack of genetic diversity (as seems to have happened with the inbred elite Darwin-Galton-Wedgwood clan), so a state-controlled economy may well grind itself into the dirt as it runs out of innovation as a result of a lack of economic diversity. Such a situation is unsustainable — no planner is smarter than nature.

Borowitz Goes For The FaceBook Trifecta

Tyler Durden — Fri, 25 May 2012 21:08:40 +0000

FaceBook is now not only the worst (from an investor standpoint) large IPO in the past decade, but by the time Andy Borowitz is done with it, it will also be the funniest. Today, having previously presented the world with the "adjusted" letter from Zuck, and introduced PhoneBook, Borowitz gives us the low down on the Facebook founder's own post-mortem.

And yes, it's funny cause it's true, because making fun of human stupidity never gets old, and because watching the formerly hip become the terminally uncool is just the greatest slow-motion trainwreck available.

From the Borowitz Report:

MENLO PARK, CA (The Borowitz Report) – The following letter to Facebook users was issued today by Facebook founder and CEO, Mark Zuckerberg:

Dear Facebook User,

Hi, it’s Mark.

As you may have heard, our IPO last week didn’t go quite as well as expected. How badly did it go, exactly? If you live in a major city, you’ve probably seen homeless guys huddled around bonfires of Facebook stock. More ominously, I just received a call from my attorney telling me that I probably didn’t need a prenup after all.

If you’re a Facebook investor, you already know what this means: it sucks to be you. But what if you’re one of the billion Facebook users in the world? Well, it also sucks to be you, because I am writing to you now to ask for your financial support to help save Facebook.

It’s only fair. Since its founding in 2004, Facebook has totally revolutionized the way you waste your life. Without it, you would find yourself in the unpleasant and awkward position of having to speak to your family. And so, to keep Facebook alive, I am instituting the following new usage charges:

– $1 per poke

– $5 for every ex you crop out of a profile picture

– $10 for every time you stalk someone from high school, college, or job you were fired from because of that HR “incident”

– $15 for every “friend” you have never met (no charge for friends you know, if any)

– $20 for every sheep, bird, or the Scrabble letters Z, X or Q

With your financial help, Facebook should be around for many years to come, providing you with hours upon hours of pointless and isolating activity. Without your help? I’ve just got one word for you: Friendster.

Help me,

Mark