Rogoff on European Sovereign Debt Post author By Philip Lane Post date May 6, 2010 Ken Rogoff reflects on the European sovereign debt crisis in this FT article. Categories In EMU, Fiscal Policy Tags European sovereign debt 62 Comments on Rogoff on European Sovereign Debt ← TASC on the Finance Act → Blue Bonds 62 replies on “Rogoff on European Sovereign Debt” http://brontecapital.blogspot.com/2010/05/from-perspective-of-japanese-household.html Japan has way more sov debt. After 20 years of mercantilist fraud, it seems more appropos to Ireland’s situation. If NAMA lasts 30 years, Ireland may look very similar. All we need now is a peck load of suckers to buy some form of medium term funding. Oh, yes, there was already a post on Solidarity “Bonds” …… Maybe we should speed up the liquidation of NAMA assets? Get into a position to buy good depressed assets? Or is that too optimistic? @ Philip Rogoff says: “In our book on financial history, Prof Reinhart and I find that international banking crises are almost invariably followed by sovereign debt crises.” So what, Iceland’s! bank nationalisation and eventual bankruptcy are not completely unconnected events? Wowza, who knew? Anyone trading in a turbulent market is affected by the turbulence. Icelandic banks were small traders. Iceland as a nation is a small trader. Markets are turbulent now, has been for some time and smaller traders with perceived weaknesses will encounter more problems than larger and/or stronger traders. The implied casuality (again) of nationalisation leading to souverign problem is getting a bit tedious. Blame game? Sure lets play: Bad bondtraders leading to problems for banks is an easier connection to make. Bad creditofficers leading to problems for banks is an easier connection to make. Bad bondtraders looking for exits (funded by taxpayers) out of bad positions is an easy connection to make as well. (Greece) Bad creditofficers looking for exits (funded by taxpayers) out of bad loans is an easy conncetion to make as well. (NAMA) I like these lines: “Economists have only a limited understanding of why sovereign nations ever repay their external debt, given the lack of any supranational legal authority that might force them to do so.” and “The fact that a country can repay its debt does not necessarily mean it should choose to do so.” More thinking the unthinkable from Krugman. http://krugman.blogs.nytimes.com/2010/05/05/greek-end-game/ @ Jesper Implied causality? Eh, where did i do that? My reference was “not completely unconnected events”, and that has always been my contention. One generally follows the other, even if one is not caused by the other. The implied suggestion that you can nationalise your banks and have little impact on the sovereign is far more tedious in my view, and is bourne out by Rogoffs remarks above. Who actually governs the bond markets?? World Bank, IMF?? If we default it will be because of the bailouts we gave to the banks which we gave to stop them defaulting in the first place and then possibly the country defaulting …..how ironic!! Wouldn’t it just have been easier to leave or 2 of them go to wall on day 1??? Reserve currency status, in turn, is the essence of America’s “exorbitant privilege” (a term coined by Valéry Giscard d’Estaing, the former French president). Some argue that America would be better off without it. Rogoff’ makes an interesting point that “graduation” from emerging market status is a long, painful process that can take 75 years or more to complete. There are no pain-free choices. Last year Rogoff advocated 6% inflation for at least a couple of years to ameliorate the debt bomb and help us work through the deleveraging process. However, in the past, while it was a short-term help, the spike in inflation in the 1970s was a surprise to lenders and maturities of debt were much longer than now. A return to the beggar-my-neighbour policies of the 1930s is hardly a recipe for success either. Since the launch of the euro in January 1999, 15.7 million net new jobs were created by 2008, three times more than during the same number of years before the euro and around 2 million more than in the US during the same period. The sum of intra-euro area exports and imports increased from about 31% of GDP in 1998 to around 40% in 2007 – approximately 9 percentage points. During the same period, extra-euro area trade growth even exceeded that in intra-euro area trade, rising 13 percentage points from 31% to 44% of GDP in 2007. There was also a big rise in private cross-border private capital flows. Inconvenient truths for the euro haters but relevant to highlight. Bondholders like Harold Wilson’s infamous “gnomes of Zurich” can get a bad press but spare a thought for the battered Irish private sector worker who is lucky enough to be part of a distressed pension scheme. Brian Griffin, who leads Mercer’s investment consulting business in Ireland has commented: ““A typical Irish pension fund would have up to half of its bond portfolio invested in government bonds issued by Spain, Portugal, Ireland, Greece and Italy. While previously this would not have caused investors undue concern, recent events have identified the additional volatility and credit risks associated with these bonds markets.” Debt write-offs, inflation and a confetti currency as an alternative to the euro, are not victimless. US jobs market underperformed the Eurozone and other economies in the decade before the Great Recession “Even more stunning a figure is Greece’s total external debt to GDP, which is more than 170 per cent, counting both public and private debt. Prof Reinhart and I find that most emerging markets run into trouble at external debt levels of merely 60 per cent of GDP. Indeed, the external debt levels of Spain, Portugal and Ireland are all sky high if one were to judge them by emerging-market standards.” “It is going to be extremely difficult for some of the peripheral eurozone economies to escape without large-scale defaults on their massive private external debts, public external debts, or both.” Can anyone point me to the figure for Ireland’s real external debt figures, i.e. excluding IFSC companies and Head quartered foreign companies? Even if we simply work off the domestic bank debts, don’t we end up with a metric that doesn’t look so hot? Ireland’s External Debt decreases to €1.61 trillion at end-December 2009 http://www.cso.ie/releasespublications/documents/economy/…/externaldebt.pdf This includes the likes of CRH’s corporate debt — a company that is a lot more international than Irish @Eoin, you mentioned nationalisation. Rogoff didn’t. You made the connection between what Iceland did (due to the banking crisis) and the problems they are facing as a soveriegn. I can’t read anything else than an implication of casuality from your comment. Rogoff is making some remarks on that Greece received cheap funding (from bondtraders) even though their debt level should have been seen as a risk indicator. From that I read that some bondtraders are not very good at what they do. That is unfortunate for their employers. Just heard on ABC News about Greece etc from a Teuton commenter: first domino then Portugal, Italy, Spain and ….. (Oh God, here comes Ireland, I thought) …. Belgium! Poor Belgium? Belgium? @Joseph – “Belgium?” – debt to GDP ratio of 85% heading over 100% plus substantial holding of PIIGS debt. Plus Belgium is not as politically stable as Ireland, and already has high taxes, so there is less room there for tax increases. Still I can’t really see Belgium being affected. Is it possible that we’re all just panicking at the moment, and with Greece off the markets for 18 months, if everyone would calm down, the worst need not happen? [clutching at straws comment, but since everything else is on the table, why not a little hope? 🙂 ] Rogoff addresses squarely the centrality of EMU in all of this. But that is something which the Irish economic establishment has yet to do. It will be interesting to see what role, if any, is adduced to EMU when Patrick Honohan (current member of the ECB board of governors) and Regling (former director-general for Economic and Financial Affairs at the EU Commission) report on our banking crisis. I am not building up my hopes. Bureaucrats tend to defend interests rather than reveal the truth. A profound intellectual failure – non-comprehension of EMU and its implications for Ireland – serves as the foundation of our economic and banking failures. In my opinion, that intellectual failure continues to this day and contributions on this website have played only a marginal role in reversing it. @ Sarah Carey People shouldn’t be talking down the economy. The fundamentals are sound and there will be a soft landing. 🙂 @ Sarah Carey In 1998, during the Russian rouble crisis, Alan Greenspan recommended that people should put their daily newspaper in their in-tray and read it after two weeks. So the answer is maybe!! The way we talk about bond markets in Ireland is getting very tiresome. The idea that they are some supreme rational force continuously updating all relevant information and pricing it accurately is simply nonsense. The wild swings in yields coming from information that everybody already knew shows how alive the beauty contest is. Are we really only learning this week that the Greek economy has such weaknesses? We need to have more rational discussion of what these markets are. Who holds most of the Irish sovereign debt? How do they actually make their decisions? What is the market structure for this type of debt? Are we talking about dozens of people who decide the price or thousands? How do rumors actually start and propagate on these markets? Is it possible to make money from starting rumours and precipitating attacks? What exactly does Minister Lenihan mean when he says that bondholders might withdraw from holding sovereign bonds if we reneged on junior bank bonds? Is it possible that informal blackmail of Ministers characterises the bond markets that hold most of our bonds or does he mean something more benign? As a previous commentator asked, what are the regulations that govern these markets? What does it really mean to “target” a country’s sovereign bond position? Charting the correlation between previous financial and sovereign crises is interesting but surely the more interesting question is the mechanism and whether it might be tempered. I am absolutely aware that country’s who have profligate spending patterns leave themselves more open to self-fulfilling attacks but at the same time I want to understand more how such attacks take place so that we can at least have a rational discussion and not this quasi-magical fear-mongering that is now the main staple of our media debate. @ Liam I’ve been trying to figure out how a speculative attack can trigger sovereign default. Comparisons have been made to Argentina, but that case involved a currency peg so is completely different. The Greek currency is 100% backed by Euros (of course) but the Argentinian Peso wasn’t 100% backed by dollars. Here is how I would launch the attack. 1) Wait for a time when a vulnerable country has to refinance a large portion of its debt. (If the country fails in this it defaults). 2) Short sell large amounts of debt that still has some time to mature. This will push down the bond price/push up the interest rate. 3) The fall in bond prices makes it impossible for the country to raise enough money to meet its obligations. 4) The country defaults 5) Bond prices fall even further due to default 6) Close the short position. I’m a labour economist not a finance expert, so I accept any corrections, but I hope this helps. As well as informed speculation, there are a lot of papers now demonstrating pure herding by institutional investors in different types of bond markets. It is deeply depressing to think that this is how far we have advanced as a world that basic primal instincts govern such fluctuations. Having said that, this works only up to a point. We would not be vulnerable to these swings if we hadn’t left ourselves dependent on these markets. @ Rory in theory you’re correct. In practise it can be quite difficult to ‘short’ a sizeable amount of a bond, its a much more illiquid market than say for an equity or a currency. @Rory – you don’t work for GS do you?! @Liam Blaming the international bond market is like trying to blame the hedge funds for the last crisis. The purchasers of these bonds are pension funds, banks (because they count as Tier 1), companies, individuals and governments (We will be buying a Greek bond with our 1.2 bn). OF course there is a herd mentality here when there is little or no demand for a bond the price drops and potential yield increases. As in essence a buy-sell decision there is little regulation of this market and there can’t be. Any sovereign that attempts to regulate will find itself in trouble. A big purchaser of Irish bonds recently were the Irish banks themselves. In essence recycling some of the cash they were given. They were told by the ECB that they can exchange the collateral on the bonds for cash so that indirectly the ECB financed a lot of our deficit. In order for the bond market to “target” a country’s sovereign bonds the bond puchasers just don’t bother turning up at the auction or bid really low prices. The government has to issue more bonds than the actual deficit as many old bonds mature in a year and have to be rolled over. When a country is running a large fiscal deficit the government and the government cannot restructure its debt or inflate it away the government is essentially mortgaging the country’s future tax-take to get cash now. Promising “recovery” on dubious or real grounds is obviously essential here. If you can’t raise enough tax now to cover your deficit now how the hell do you intend to do it the future?. Given that the recovery from the last financial crisis is anemic it is very hard to see how a lot of the longer term bond-holders of European debt are going to get paid. Inflation, a great adjuster of debt, is more or less out of the system and the strong euro is killing the export potential of some countries. @ Sarah Carey Sarah, Just a further response to your question — back to work after dinner in KL and in advance of the ECB webcast from Lisbon – – one day last June, the ECB provided €442bn in liquidity to Eurozone banks. It has a bazooka in reserve. Jean-Claude Trichet, an architect of the EMU, is not going to retire next year, as Europe struggles to recover from the collapse of the euro. The ECB can buy government bonds if necessary and send hedge fund negative bond betters packing. So all the shroud waving is a bit overdone. After all Germany is prepared fror debt restructuring. @James I wasn’t “blaming” the bond markets and stated twice that our fiscal position is partly what is leaving us vulnerable so I am going to exclude myself from the category of people looking for a simple target to blame. Having said that, our public debate on bond markets is currently very stupid and ignores many features of these markets such as the ones I mentioned. I do want to know what people mean by claims such as the one that says that defaulting Bank of Ireland debt could lead to investors to run away from sovereign debt. I also want to know how we should think about things like herding and so on. Most of the people who comment on bond markets are tied into them in some way and present a view that is overconfident in terms of how intelligent the decisions made there are. Actually some of the points you are making get close to the type of discussions we should be having i.e. who the bond holders are, why do they make their decisions, why do they react even to non-informative information? Our entire economic news agenda is now dominated by rumours emanating from bond markets and macroeconomic forecasts that have as much scientific status as neighborhood gossip. You say that you cant see how a lot of longer term bond-holders of European debt are going to get paid. Yet practically every European country that has recently issued long-term debt has been oversubscribed? Do you know something the markets dont? Apologies Jules – I had your name as James. I particularly apologise if your name is actually James in which case you must be a bit spooked at this stage! @ Eoin I’m not claiming that it is a speculative attack, just that thats how I would do it. To be honest I’m more inclined to to think herding is the reason for the movements, especially any risk of contagion. @Liam, Yes good point what exactly is the ling between Bank Of Ireland paper and sovereign debt. I think we are going to rue the day this government linked our bank debt with sovereign debt. When Lehmanns went down is was not linked with American Government debt, there was an increase in yields but that was more linked to worries about the overall economy. In USA over 130 banks have folded since the start of the crisis. In Europe the ECB really liked the govenments offer to transfer dead bank debt to sovereign. In particular the ECB and the Germans were delighted with the Anglo saga – In essence because the Anglo 20 bn, in one way or the other was raised by debt we will be paying 1 bn a year or 250 euro per person till kingdom come. In time we have to inflate that away or default. Reference long-term debt being oversubscribed is a mystery. I think that the world is awash with oil money and chinese savings looking for a home that makes some return – equities are a rocky road – and if you can insure against some of your losses with Credit default swaps – why not. I think probably historically we will look back at this period with a lot of bewilderment – Huge losses on Anglo-Saxon property where institutionalized as governments ran around swapping piles of bank debts for Government paper – I think that the bankruptcy courts would have been a much better way of dealing with this crisis as now three years on we are just looking at another sovereign debt crisis with potentially trillions of losses @ Liam – valid questions. I just wonder how ‘representative’ the findings from before the crisis are to understanding what is going on now and vice versa. @Michael I like the cut of your jib. I’ll switch off the radio so and stop calculating how many potatoes I can grow…. btw, I don’t get the panic over a weak euro. Aside from the fact I’m paid a retainer from a US company in $ and have winced at the amount I’ve lost in the past few years, surely a weak euro would help exports. If I wandered down G Street bashing citizens over the head with my hurley … I would be ……. (arrested/feted). No Smarties for the correct response! However if Mr Bond bashes the hell out of the human beings in (insert country of choice), then he will be congratulated! Now please tell me I am missing something here. Perhaps we should get a ‘shrink’ to explain the psychatric(al) well-being of persons who advocate harm to their fellow human beings. Vlad? Ghengis? or your man with the limp from Tashkent? Nice guys, but I should not want to be on the sharp end of their ‘generosity’ Issa of Nazareth seems a better role model! Default, and damn the Mr Bonds – no matter whom! The sky will not fall. Think of it as washing that pesky ash out of the atmosphere. B Peter @ Sarah Carey The panic isn’t over a weak Euro per se, its about the ability of Euro states to refinance their obligations. You could argue that perhaps Greece is not of ‘systemic importance’ to the Eurozone. But suppose due to market panic a big country like Spain or Italy defaulted. This would have serious consequences for the whole Eurozone. There could be bank runs and pension funds wiped out. Also if investors from outside the Eurozone expect the Euro to decline, they will want a higher interest rate to compensate them for the expected fall in the value of the Euro. This makes raising money more difficult for all Eurozone countries (but only to the extent that they raise money from outside the Eurozone). Finally, there are the implications that economists are not qualified to make predictions about. Namely, how much social unrest do we really want in a Balkan country? @ Brian Woods Searching too hard for Utopia can lead to some unintended consequences…Lenin Stalin, Mao and Castro come to mind. On the other hand, billionaire George Soros sending a representative to a dinner for hedge fund managers where they plotted how to bet on the crash of the euro; then he gets a spot in the FT warning of such an eventuality and pays economists to attend the launch of his economics institute, all is certainly hard to stomach. As for defaults, as I said earlier, it’s not just the fat cats who lose their cream. @ Rory O’Farrell As in Ireland, it’s elites who prosper in corrupt societies. How should an endemically corrupt country such as Greece be reformed? Not an inch used to be the slogan of Irish unionists; it is the universal battle cry of vested interests everywhere. @ Michael Hennigan The Bretton Woods system of global financial management seemed to reign in the tyranny of the markets somewhat. http://www.irishtimes.com/newspaper/opinion/2008/1010/1223560345968.html I have heard several times today that if Greece defaults then this will increase the likelihood of Spain, Portugal and perhaps Ireland suffering massive increases in the cost of borrowing and perhaps also default. This is presented as if it were some type of scientific truth. A number of serious commenters have even suggested that Greece might have to default because the austerity measures imposed on them as a condition of the subsidised loans will collapse their economy. We discuss some of this material on this site as if there are sensible stable theories that justified these types of claims. Anyone making those claims should have to issue a health warning on the back of them. In general, the confusion between serious commentary on bond markets and rumours is hurting again the reputation of economics. @ Jules ‘when there is little or no demand for a bond the price drops and potential yield increases. As in essence a buy-sell decision there is little regulation of this market and there can’t be. Any sovereign that attempts to regulate will find itself in trouble’ Bond markets have their own characteristics but do do not exist in a vacuum. Wealth flows within and between asset classes on the basis of push and pull. All sales are at a price. There is the pull of greed (search for yield) and push of fear (risk aversion). Blind search for yield leads to bubbles and blind risk aversion leads to crashes. Serious money is made by those who are powerful enough, clever enough, unscrupulous enough and lucky enough to see off the competition. Crises are profitable for some, which is why they are often deliberately created. While instutional bondholders may have a conservative profile, the record shows that they have been sucked in to the casino. It is surely naive to imagine that they have a view, or a set of values, which is somehow more long term than their counterparts elsewhere in the financial sector. Even the biggest states are hostage to the market, which is why regulation requires to be global. It will doubtless be a dirty scrap but it is unavoidable. @ Liam Delaney Try Econned by Yves Smith. for a nice over view of how money talks to money. @ Michael Hennigan “Not an inch used to be the slogan of Irish unionists; it is the universal battle cry of vested interests everywhere.” I think you should replace Irish with Ulster is and put a capital letter for unionist. @ Liam Delaney I agree completely with you. Can you name a single Irish daily journalist that you think has a good understanding of economics? Since George Lee left I can’t. Speculation is reported as fact. Inaccuracies are reported as fact. And the just plain wrong is reported as fact. (A bit off topic, but the Economics Anti-Textbook is excellent additional reading for economics undergraduates that highlights that economic theories are evolving, and not proven scientific truths). @ MH: Thanks for the comment. I had a practical solution in mind. The debt predicament we are in is insoluble. The required surplus cannot be generated. Default is inevitable. Just a matter of time and circumstance. Anyone who disputes this had better be able to show that linear and exponential growth are identical. Met a funny bloke reccently. Said his name was Fred Soddy. Said he was an FRS and had one of those Nobel thingies. Wittered on about Wealth, Virtual Wealth and Debt he did. Checked him out. He does indeed have a Nobel, but in Nuclear Chemistry! Now what would a Nuclear Chemist know about economics I wonder? Seems quite a lot! Individual human beings (of pretty high status) are advocating – with some enthusiam, that millions of their fellow human beings be subjected to ‘pain’. Such a person is a psychopath and should be confined for an indefinite duration in the Violent Ward. Get Marie Murray to say a few words about people who advocate harm to others. B Peter @ Liam there’s an old saying in the trade – Markets can stay irrational far longer than you can stay solvent. Like it or not, “contagion” is a very real, if peculiar, phenomonon. “The way we talk about bond markets in Ireland is getting very tiresome. The idea that they are some supreme rational force continuously updating all relevant information and pricing it accurately is simply nonsense. The wild swings in yields coming from information that everybody already knew shows how alive the beauty contest is. Are we really only learning this week that the Greek economy has such weaknesses? ” Perhaps what we are learning this week is how these weaknesses pan out and are dealt with in the real world. The strikes and deaths in Greece; the obvious weaknesses of the bail out plan (with an accompanying failure to acknowledge those weaknesses); and now a percieved failure to act by the ecb; Not only are these developments important in and of themselves but they may provide guidance as to the likely quality of any future policy responses. More half measures, fudges and failure to address core problems… In short, it could be argued that saying that there has been little new information this week about whether or not greek and other pigs debt is a better or worse investment encapsulats a personal judgment about the relevance of the information that has been received this week. @Christy Isn’t it the point that there actually isn’t much that’s new at all. It’s just a panic has taken hold. Greece won’t be able to implement the cutbacks! Uh-oh We F*cked up on the euro! Eeeek check out the PIIGS debt! €110bn? Why so much? So the Greeks are having a strike. Big deal. The legislation is still going through. Papandreou’s government is stable. Their debts will be paid and life will go on. If everyone stops for a second, do we REALLY think the euro is about to collapse? It might, but it probably won’t. Countries are not going to start defaulting on each other. Of course, panic itself IS enough to make everything worse, but in essence, nothing actually is worse than it was last week. Except people’s attitudes. It’s back to Liam’s questions. What precisely are the mechanisms by which the “market” works? People being people… Talking of panic, is anyone watching CNBC right now…. Dow dropped by 10% earlier on a fat finger trade (apparently), rallied back to only 3% down. The words “blind panic” are too often used…..but 30 mins ago…. Have been looking at this Eoin. Hilariously, there were already several articles online talking about how fears about bank exposure to Greek debt were leading to downturns in US equities. It seems to have been the case that somebody typed billions instead of millions when making a sale of a big stock and triggered loads of others to do the same. It doesnt exactly hurt the case I was making above though I haven’t read a definitive account of what happened yet. @ Liam think the Dow was starting to fall pretty heavily anyway, then someone (at Citi it seems) did a 16 bn Proctor & Gamble trade instead of 16 mn one and then all hell broke loose with stop losses and automatic algorithmic trades doing the rest. All very bizarre. @Edgar, Eoin and others Russ Roberts did a brilliant interview with Taleb recently on the limits of econometric models in forecasting financial markets. Before all the econometrics bashers line up, you should remember that there is a difference between econometrics per se and the inappropriate use of econometrics for certain types of financial forecasting. Taleb is extremely convincing that much financial forecasting is pure nonsense though many people like Edward Leamer had always been saying versions of his argument. I have to say I like Taleb’s performance in this interview. Part of economic recovery is going to be the building of more robust ‘human-proof’ less corrupt financial systems. People that continue to choose to look at things like bond markets as inhuman natural predictable stable systems should have only an outsiders role in the redesign of these systems. http://www.econtalk.org/archives/2010/05/taleb_on_black_1.html @Eoin yes, fair enough and there were even a few commenters who twigged that something bizarre was happening. Dennis Gartman, the hedge fund manager was on CNBC tonight saying that he thinks that the Euro will fall apart http://www.cnbc.com/id/36961257 El-Erian from PIMCO also sees opt outs from the Euro – weaker countries taking a sabbatical http://www.cnbc.com/id/36992469 Am up watching the election. Apparently since we were speaking Asia has figured out that Greek problems might “spread” to other countries. http://news.bbc.co.uk/2/hi/business/8666545.stm Even funnier is that the British bond markets opened at 1am to ensure that, ahem, the markets could reflect the reality of the evolving political situation. The patterns of trading really would make any local bookie blush. It is all going according to plan. These are rational players. Nothing to see here. We should be, and some of our readers are, rejoicing. These are sensible plays. Get with the program and make moolah. Expect the odd trap along the way, say like a 1,000 point fall …… to catch the unwary and get some ahead of the pack. OPM is still the only game in town! Liam “Part of economic recovery is going to be the building of more robust ‘human-proof’ less corrupt financial systems.” No, just the illusion of such! Those who believe you will be the new suckers! OPM, is the only game. When that is tackled, then I will agree with you. The illusion is important. To TPTB. When Buffet and the rest are dead, perhaps things will change, but what is the IFSC if not the future? Perhaps the Irish will be a little more cautious? But still they pour money into pension funds etc. There will be a lot of pressure on you among others to agree that what is emplaced is fine. Wiull you buy into it? After all, buyer beware! Sarah Carey You are obviously a lovely person. I can make money for you. Please send me a blank cheque ……. Fred Soddy I am already a fan of his. I also read what other fans of his write. B Peter The christ was a greek concept, taken from India and so the Imperium Romanum, worshipping Sol Invicta, rolled up Issa, Joshua and John into a controllable package that would motivate troublemakers who believed in loving others to work for their masters. Naturally, they made it seem as if the “church” had conquered Constantine. Now the shiftless, happy christians could be coralled and remade. Now they were Christians. Christians are happy to kill sub-humans. Consumers are happy to borrow, stealing from the future to buy toys and houses that they can sell to their gullible neighbours, the ones we should love, become victims. Those who decry this are vilified and invited to suicide. Kali Yuga? Our unionist friends were deluded into certain patterns of thought, but were those who are not unionists free from delusion? A simple examination of interests and events may show true alliance is possible, despite those who sow dissension. By exzamining what is in common, it is possible to identify those who are wolves dressed in sheepskin? Cormac Lucey There was such an intellectual failure. But why? There were many in Europe, in very high, merited and appointed offices, from Ireland, who fully appreciate EMU. Their advices were deliberately ignored by those who still cling to power. Power and greed overruled their advices. Those who pumped credit into Ireland were a;lso aware of the likely consequences. The opportunity for reform presents itself. You may present your suggestions for such reform publicly or privately. @Sarah, “people being people” is what the market is all about. I believe that it might be possible to guess a few attributes of some bond traders who are trading in highly rated bonds: They are risk-averse by nature. By their nature they do not like taking risks and could possibly for that reason be seen as perfect for the low risk environment. They are like most people also unwilling (probably more than most as they are risk-averse by nature) to risk losing their job. They are smart people and they see that anyone sticking out runs a higher risk of losing his/her job. Being risk-averse, they try not to stick out. What does this lead to? They will follow recommendations, they’ll follow guidelines, they’ll use models provided for them and most importantly they’ll do what everyone else is doing. Critical analysis of assumptions is left for others. Rating agency recommendations will be followed. If a guideline says it is ok to do something, other people are doing it & it will lead to bonus then it will be done. In effect, as they are not doing any critical analysis and just following guidelines, models and/or others they are doing the job of a junior office clerk. Probably the highest paid junior office clerk job in the world 🙂 All this lead to herdmentality. Now we’re seing what a herd is doing when faced with perceived danger. Stampede in panic or stand still in a circle with horns/antlers pointing outwards in a defensive posture. Anyone leaving the safety of the herd is putting themselves at risk or even the herd at risk. @all I think Pat needs an intervention 🙂 As for American predictions of euro disaster. They would say that, wouldn’t they? hmm perhaps not people after all. Check out this story about computers role in the dip.. http://www.nytimes.com/2010/05/08/business/08trading.html?th&emc=th @Sarah Carey – thanks. See breakfast with Roubini thread for more on this subject. No doubt disparate platforms with different rules and high frequency trading compounded the problem. The only ‘fat fingers’ around are the ones various people are all pointing at each other! Hi, I was going through your blog http://www.irisheconomy.ie and found some quite interesting articles on Tax with lots of information. 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