Exhibit 1: A speech by Lorenzo Bini Smaghi, as reported on by Yves Smith:
nakedcapitalism.com/2010/05/ … risis.html
Friday, May 14, 2010
Herd Leading, Undisclosed Conflicts, and the Euro Crisis
Just because you are paranoid does not mean they are not out to get you. And just because skepticism of Eurozone salvage operations is warranted does not mean that all of the criticisms should be taken at face value.
Andrew Dittmer pointed out a speech he correctly deemed to be “surprising” by Lorenzo Bini Smaghi, a member of the Executive Board of the ECB on “Lessons of the Crisis: Ethics, Markets,
Democracy” (and he also reports the translation is not bad either).
If you decide to read the whole speech, the first half is singularly unpromising and I recommend ignoring it (it discusses the Lehman aftermath, and argues that democracies are not good at making short term sacrifices for long-term gains. He rather underplays that the short term sacrifices entailed rescuing rich and powerful people who had caused a disaster and imposing costs on taxpayers who were often innocent bystanders.)
But then it veers off in a completely unexpected direction. Smaghi describes how media is used by private parties to amplify the profits of speculation.
Some reader may take issue with his examples, since as a member of the ECB, he seems more than a little annoyed at banks who undermined the Greek rescue efforts. But the sort of examples he gives helps explain some of the paranoid reactions I have gotten when I have run articles by those who are skeptical about the future of the Eurozone.
Smaghi cites particular instances where influential parties had poor justifications for their positions or look to have operated in a self-serving manner. While most people with an operating brain cell assume that investors would talk their book, Smaghi is targeting analysts and others who are treated by the media as objective. His discussion stands out because it is clear and detailed and ventures into terrain that most officials pointedly avoid.
The comments are interesting too, if one-pointed - picking up on the ECB’s hypocrisy over the rating agencies and largely ignoring the rest of the criticisms.
Also knowns as the “short and distort” tactic described by James Kramer. Apparantly, its when a bunch of hedge funds or speculators all go short on something and then plant distorted stories in the media to further undermine confidence in whatever theyre shorting. This amplifies prices falls and allows them to profit further.
A good example of short and distort was the rumour put about last friday that Sarkozy theatened to pull out of the euro. Total exaggeration put about to further the euros fall and make more profits for the speculators.
On the bond purchases, some analysis:
ftalphaville.ft.com/blog/2010/05 … n-context/
The ECB’s €16.5bn bond-buying, in context
Posted by Joseph Cotterill on May 17 17:02.
The European Central Bank has opened the kimono on the amount of bonds it has bought as part of its bid to stabilise securities markets — and a few analysts have delved inside, to consider how the programme is going.
First, Harvinder Sian of RBS:
I particularly liked this bit:
While BBH currency analyst Win Thin looks to the longer term:
If the ECB has had to buy debt this past week, that basically tells us that in the private sector, there are more sellers than buyers. Otherwise, there would be no need for the ECB to step in. If they have indeed stepped away a bit and yields then go up, that suggests that there are still more private sector sellers than buyers…
…perhaps having the ECB buy up this debt will make an orderly debt restructuring easier sometime down the road. The ECB is certainly in a better position to take a haircut than the European banks.
Not so much for the rather anodyne content, but more for the analyst’s name. Rather appropriate for the bond market?
“Opening the kimono” has to be the most ridiculous business buzzword to have come out of the last ten years. Hopefully, it will die the death it deserves soon, never to be heard from again.
on the amount of bonds it has bought as part of its bid to stabilise securities markets — and a few analysts have delved inside, to consider how the programme is going.“Opening the kimono” has to be the most ridiculous business buzzword to have come out of the last ten years. Hopefully, it will die the death it deserves soon, never to be heard from again.
Should we draw a discrete veil over it?
a little Off Topic but, if you’re wondering “Where Next” for the ECB in the Medium to Long term :
May 17 (Bloomberg) – European Central Bank Executive Board member Juergen Stark may succeed Axel Weber as Bundesbank President if Weber becomes ECB President next year, Handelsblatt newspaper reported, citing an unidentified member of Germany’s cabinet.
Weber is the frontrunner to replace Jean-Claude Trichet at the ECB’s helm when Trichet’s term ends on Oct. 31 2011. Stark would take over from Weber at the Bundesbank to ensure Germany didn’t have two seats on the ECB’s six-member Executive Board, Handelsblatt said.
bloomberg.com/apps/news?pid= … yVt07YvEWg
Weber appears to have the ECB Presidency in the bag - Wolfgang Munchau in the FT also said as much today -
Stark - is appropriately enough a noted Inflation Hawk (appropriate if you speak ze German…) - and Weber is cut from the same cloth
ft.com/cms/s/0/7e114d26-6115 … ab49a.html
While the Commission’s proposal avoids the question of short-to-medium-term economic adjustment, it has some sensible things to say about effective governance in a monetary union. It recognises that you have to go beyond fiscal co-ordination and incorporate structural policies as well. It will be interesting to see how much of that part will survive the EU’s legislative mill. I would expect that Angela Merkel, the German chancellor, will push through the bulk of her agenda. The most likely outcome will be a much tougher stability pact.
By the way, the German media reported last week that Ms Merkel had also secured sufficient support for Axel Weber to succeed Jean-Claude Trichet, in October 2011, as president of the European Central Bank.
Holy shitola, how do the German’s make head or tail of what their compatriots are saying?:
PS not off-topic at all!