How about a quick finance post for those that are trying to get the license plate number of the Greek semi that ran them over today.

How about we start with today’s market action explained at the Huff Po of all places and visit with Zachary Karabell:

The Greek debt crisis finally spilled over in full force to U.S. markets, aided and abetted by extreme statements emanating from such esteemed and prominent voices as Muhammed El-Erian of the large bond investor Pimco, who warned that Greece could be just the beginning of sovereign debt catastrophes. In the space of minutes, the major U.S. indices plunged more than 10%, fueled by the same programmatic electronic trades that were part of the battering in late 2008 into 2009. And then in the space of 15 minutes, they recovered, without — it’s fair to say — much human decision-making during that interval (and if an individual even tried trading during those 30 minutes, they would have found it difficult or impossible, as web sites such as schwab.com were completely overwhelmed with traffic).

Fair enough but the man’s conclusions past this point aren’t worth printing here on Slabbed. Program trading will be with us forever but it is not the culprit here despite the uninformed rantings of the author who is obviously long the market now most likely stuck (stuckholder in finance board parlance). For my part I sold in April and went away (a month ahead of time). That said I am not Carnac the Magnificent but besides staying at a Holiday Inn last night I also read Yves Smith over at Naked Capitalism.

To the extent the problems with Greek debt were hardly a secret Yves is not special among financial bloggers. What makes Yves special is the fact he understands the ramifications of the interconnectivity in global finance and in the case of Greek debt there is a special connection I’ll now share with the Slabbed Nation: AIG most likely will be on the hook for a decent chunk of Greek National debt should there be a default. In other words the United State’s taxpayers should get ready to grab our collective ankles again because the big one is coming as we again present another example of “insurance” that managed to escape state regulation and thus the watchful eyes of our diligent state insurance commissioners. (Don’t faint Jimbo I’m being sarcastic, you couldn’t regulate grade school kids my man let alone insurers):

London investment bankers name AIG as a further CDS-seller. That company had to be nationalized during the financial crisis due to its having written insolvency insurance on American mortgages. This debt-load would have led to the collapse of the world’s biggest insurer. Prior to the financial crisis AIG is said to have widely held State credit-risk. If yet-larger insurance positions on Greece exist, then the American government would have a strong interest in preventing that country’s insolvency.

Even if these are mere rumors about the Greek banks and AIG, this example makes clear the weakness of CDS markets. This protection is sold by banks or insurers who themselves have access only to limited capital resources. They have as a rule clearly lesser credit-worthiness than the states for which they are selling insolvency protection. Insurance by CDS could turn out to be just a bubble.

So here we have it again boys and girls where global financial service companies operate outside of any coherent regulatory framework. Why we insist on giving these global companies an anti trust exemption and no effective regulation both mystifies me and causes me to think most of Congress is either on the take or completely brain-dead (likely on the take IMHO). And when the bad bets come due and can’t be paid the same bunch in DC pulls open the treasury and gives money we don’t have away to these companies like a crack addict paying for his next fix.

What a sad time for capitalism, even the naked variety. Sup I wish I had emailed you yesterday.

sop

6 thoughts on “How about a quick finance post for those that are trying to get the license plate number of the Greek semi that ran them over today.”

  1. Sop, do you think the “wizards” in Washington can connect the dots between the course they have put the USA on and Greece? I don’t. They are intoxicated with and addicted to “our money”. Until we, the citizens, figure out how to control the amount of money they have to waste the insanity will continue.

    As for AIG. Let them go down. Better them than the entire US economy. We do not need to waste more of “our money” on Greece in this manner. Little Timmy will waste enough of it through the IMF.

    I am going to write one of my senators this weekend to “stop the insanity”. However, this particular senator is brain dead and only shows up to vote when Harry Reid calls. The current Congress can begin the reversal quite easily. There is $400 billion in unspent “stimulus” funds that could be cancelled as the economy is recovering on its own as it always does. This is not money that would go back into the Treasury, but money we will not have to borrow.

  2. I’m cautiously curious. Do you think me and my sophisticated uncle are safe in the rainforest when Washington has to do what the greeks did- cut back on entitlement programs especially for the ones who pay no taxes but get money back each April 15th from the taxpayers? So you think I need to buy a gun do you Chief Serpas to protect my bananas- thanks for the one up brother!

  3. When we go bankrupt there will be few safe havens and those would be mostly in commodities such as gold.

    According to the people at US Debt Clock we’re already in the red to the tune of $116,865 per citizen. The overwhelming majority of this country’s citizen’s net worth goes below zero when that is subtracted from their personal net worth totals, especially these days when so much value has been lost in the real estate market.

    Those that have no debt will suffer the least.

    I say when rather than if because if we cut every descretionary program plus national defense we still don’t close the gap in our federal budget. For instance that medicare presecription drug benefit passed back in 2004 was a budget buster. The Tauzin amendment attached thereto where the government can’t even price shop the drugs makes it worse. You may remember Billy Boy got a multi million dollar a year job running a pharma trade org within months of slipping in that amendment.

    So while you got around two thirds of DC robbing us blind with their self serving double deals the only place left to cut is social security and medicare which are the biggest components of the budget anyhow. I don’t see the political will on either side of the aisle to fix it.

    sop

  4. I agree Sop. It shouldn’t stop at just SS and Medicare. The entire benefit packages of all government employees must be addressed. Once again I refer to the Greece example. That does not mean the Feds should become involved with state and local sitautions as that should up to the local jurisdictions. As Margaret Thatcher once said, and I paraphrase, “Socialism works only until you run out of people to tax”.

    Our crisis in this country will really begin with states needing bailouts. Can the pols say no to CA,NY,IL, MI and the list goes on? The answer is obviously no. Therefore, they will just keep on digging the hole. I am afraid it is going to take a catastopic financial event to get their attention. I personally don think we are from that situation.

    Sup

  5. Everything has to be on the table including taxes.

    The fact that won’t happen is why I tune out of the political rhetoric almost in total. An example of what I’m talking about is periodic shill bitching about earmarks (typically from the political right) which is right around .5% of the problem. It doesn’t help that partisan idiots in the national media give it coverage that far outweights the significance to the budget or the deficit but such is a reflection of the public because the media generally serves what people want.

    I don’t trust the TEA party because their rhetoric does not match their myopia when it comes to the causes of the deficit. Maybe it was OK with that crowd that the national debt skyrocketed under George Bush because he was Republican but the end result is the same. When that bunch booed Gene Taylor in Moss Point last year when he showed the slides on the growth of the National debt since 1980 tells me reality is not what they are intereted in.

    There is no silver bullet, no magic potion that fixes these type problems. Individuals that run their household the feckless way this country’s finances are being run end up bankrupt and so shall we.

    sop

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