Interesting Contrast

[oddlots]

Jesse linked to an interview with Kyle Bass where he talks up the debt crisis quite effectively:

http://watch.bnn.ca/the-street/decem...11/#clip584882

He has some interesting notes about the debt problems surrounding us on all sides. But what interested me was his points about the US banking sector having been re-capitalised while the European banks have not, as yet, been. Hmmmm... how did we achieve this?

Oh yeah I think I know:

http://neweconomicperspectives.blogs...-fib.html#more

(I don't know enough about the FED's operations to offer an opinion on whether the above is good analysis, but it at least is a handy indication of how huge the effort has been.)

Why is this method of re-capitalisation not available to Europe? I'm not being facetious, I'd really like to know.

[c1ue]

Re: Interesting Contrast

Because the euro equivalent of the Fed (the ECB) can't gin up the printing presses like the Fed did.

This is what the fighting is all about: Germany won't let the ECB gin up the printing presses until they get fiscal controls put in over the 'bad debt' PIIGS.

[oddlots]

Re: Interesting Contrast

Badly thought out question... apologies.

What I was getting at is this: how is it that Kyle Bass can so easily move between "US banks have be re-capitlised" and the Europeans' only choice is between recapitalisation before or after a default. It just seems weird that there's an assumption that we're all operating under the same vengeful god when it's clearly not true (as far as I can tell.) True, Bass extends his criticism to include Japan and the US, but it's this notion of recapitalisation (so anodyne) that I think does the work in his argument. And that's a lot of work: somehow debt laden UK get's off scott-free while he paints others as profligate. It's this weird, apprent cognitive distortion even if only in argument that I was trying to highlight.

[astonas]

Re: Interesting Contrast

Badly thought out question... apologies.

What I was getting at is this: how is it that Kyle Bass can so easily move between "US banks have be re-capitlised" and the Europeans' only choice is between recapitalisation before or after a default. It just seems weird that there's an assumption that we're all operating under the same vengeful god when it's clearly not true (as far as I can tell.) True, Bass extends his criticism to include Japan and the US, but it's this notion of recapitalisation (so anodyne) that I think does the work in his argument. And that's a lot of work: somehow debt laden UK get's off scott-free while he paints others as profligate. It's this weird, apprent cognitive distortion even if only in argument that I was trying to highlight.

I have to say that I see a similar dissonance in Bass' stuff.

The first time I saw him in a clip, it was like a breath of fresh air. He's smart, analytical, unafraid of digging through the raw numbers, and willing to buck the trend. All good signs.

But as I started digging deeper into his writings, it seems that he is just as trapped in his vision as the next guy. It's just a different vision. And since its one that's not too far off the iTulip perspective, perhaps it gets less scrutiny here.

Thus, while I still agree with a lot of things he says, I think he makes a fundamental error in extrapolating results from one system into things that must happen in all systems. Essentially, he assumes that the entire world does, and wants to, play by Anglo-Saxon rules.

He's partly right in that. The Anglo-Saxon properties of extreme leverage, sophisticated financial instruments, and fast trading have been highly profitable, and adopted to varying degrees in much of the world. And in his world (hedge funds) it may look like the conversion is complete. But there's a lot of stodgy individuals in other cultures who wouldn't mind seeing that whole world recede back into its "rightful" place, if not into oblivion. And unlike the U.S. and the U.K., in some places those folks are actually the ones in control. It's almost like they are shooting for a different flavor of capitalism entirely.

So that's why I think he's misreading Japan. Not because he's wrong on the numbers. I completely trust him to dig through those like a terrier. I think he's wrong because he assumes that those numbers will necessarily drive the decisions of the countries involved in a way he believes is inescapable. The word "inescapable" makes assumptions about the rules of the game. And there are plenty who not only want to change the rules, but break the game board.

[GRG55]

Re: Interesting Contrast

I have to say that I see a similar dissonance in Bass' stuff.

The first time I saw him in a clip, it was like a breath of fresh air. He's smart, analytical, unafraid of digging through the raw numbers, and willing to buck the trend. All good signs.

But as I started digging deeper into his writings, it seems that he is just as trapped in his vision as the next guy. It's just a different vision. And since its one that's not too far off the iTulip perspective, perhaps it gets less scrutiny here.

Thus, while I still agree with a lot of things he says, I think he makes a fundamental error in extrapolating results from one system into things that must happen in all systems. Essentially, he assumes that the entire world does, and wants to, play by Anglo-Saxon rules.

He's partly right in that. The Anglo-Saxon properties of extreme leverage, sophisticated financial instruments, and fast trading have been highly profitable, and adopted to varying degrees in much of the world. And in his world (hedge funds) it may look like the conversion is complete. But there's a lot of stodgy individuals in other cultures who wouldn't mind seeing that whole world recede back into its "rightful" place, if not into oblivion. And unlike the U.S. and the U.K., in some places those folks are actually the ones in control...

Care to enlighten us with some examples? [and no, I don't think Merkozy, or either half of that conjugation, meets your criteria]

...It's almost like they are shooting for a different flavor of capitalism entirely.

So that's why I think he's misreading Japan. Not because he's wrong on the numbers. I completely trust him to dig through those like a terrier. I think he's wrong because he assumes that those numbers will necessarily drive the decisions of the countries involved in a way he believes is inescapable. The word "inescapable" makes assumptions about the rules of the game. And there are plenty who not only want to change the rules, but break the game board.

TMWP. [The market will prevail].

[astonas]

Re: Interesting Contrast

Care to enlighten us with some examples? [and no, I don't think Merkozy, or either half of that conjugation, meets your criteria]

Well I certainly agree that Sarkozy doesn't fit the criteria. And I also agree that Merkel herself has not said it publicly yet. But I think she is also being very diplomatic about what she says aloud. I believe that her private thoughts are more similar to Volker Kauder, a close political ally, who proudly stated "Suddenly Europe is speaking German". There is a belief that the current situation is a perfect opportunity to "throw out" the business practices that allowed unsustainable debt to build up in the first place. And if those that participated get punished, that is not to be feared, but desired.

The calculated ejection of Britain was driven by precisely this sentiment. It wasn't just about the Tobin Tax, but about restricting or eliminating the entire banking philosophy, to the fullest extent possible. The Tobin Tax was just the first visible focal point, which was why Cameron was correct to reject it. That was just the beginning, not the end, of the onslaught.

But let's, for the sake of argument, take for granted that you are right, that Britain's ejection was due to a mistake, and that Germany's current government is NOT interested in a shift away from Anglo-Saxon banking practices. This would not be a surprising stance, given CDU/CSU's alliance with business-driven FDP.

It doesn't change the fact that the German electorate IS pushing for this shift, and that in a rolling Parliamentary system, she doesn't have the luxury of ignoring them for a while the way politicians in the U.S. do.

Remember, Merkel's party has historically favored the PRO-business, PRO-banking side of Germany. If you think SHE's being tough, you should see the ANTI-business crowd that she might have to join in the next coalition government if the FDP continues to weaken. The political tide is moving away from Britain, not towards it.

TMWP. [The market will prevail].

Yes, it will. Eventually. But not along a pre-determined path, invariant of context. And not in a way that governments have no influence over. (The operative word is influence, not control.) No government is in control. But some choose to assert THEIR influence ON the markets, and others allow themselves to BE influenced BY the markets.