Portugal, Spain Following Greece's Path, Second Bailout "Streching It"

[MrJim]

Europe debt crisis spreads to Portugal

ATHENS – Greece was pushed to the brink of a financial abyss and started dragging another eurozone country — Portugal — down with it Tuesday, fueling fears of a continent-wide debt meltdown.

Stocks around the world tanked when ratings agency Standard & Poor's downgraded Greek bonds to junk status and downgraded Portugese bonds two notches, showing investors that Greece's financial contagion is spreading.

Major European exchanges fell more than 2.5 percent, and on Wall Street, the Dow Jones industrial average finished down more than 200 points. The euro slid more than 1 percent to nearly an eight-month low.

"We have the makings of a market crisis here," said Neil Mackinnon, global macro strategist at VTB Capital.

Greece is struggling with massive debt, and with prospects for economic growth weak it could end up in default. Its 15 eurozone partners and the International Monetary Fund have tried to calm the markets with a euro45 billion rescue package, but it hasn't worked.

Standard & Poor's warned that holders of Greek debt could take large losses in any restructuring, but a greater worry is that Greece's debt crisis is mushrooming to other debt-laden members of the eurozone.

One bailout can be dealt with but two will be stretching it, and there are fears that other weak economies could be pulled down in the Greek spiral — including Europe's fifth-largest, Spain. Can Germany, Europe's effective paymaster, continue to bail out the weaker members of the eurozone?

The crisis threatens to undermine the euro and make it harder and more expensive for all eurozone governments to borrow money.

It has also disrupted cooperation between eurozone governments, with Germany resisting the idea of bailing out Greece unless strict conditions are met.

Many investors think Greece will have enough money to avoid default in the coming weeks, but the future is cloudier.

Both Standard & Poor's and the Greek finance ministry insisted that the country will have enough money to make the euro8.5 billion bond payments due on May 19.

Even if it does, Greece faces years of austerity with living standards sharply reduced. Standard & Poor's warned that the Greek economy was unlikely to be as big as it was in 2008 for another decade.

Junk status sinks Greece's hopes even deeper. Losing investment-grade status for its bonds means that Greece will have to pay higher costs to borrow if it taps debt markets again, and increases the chances that existing debt will have to be restructured.

"The latest developments mean that the chances of Greece solving this situation without restructuring its debts are now dim," said Diego Iscaro, senior economist at IHS Global Insight.

German Chancellor Angela Merkel reiterated her position that Greece should first conclude the current negotiations with the IMF and the European Union about austerity measures for the coming years before receiving the international loan package.

Speaking at an election rally Tuesday afternoon, Merkel said it is appropriate to tell Greeks, "You have to economize, you have to become fair, you have to be honest; if not, nobody can help you," according to the German news agency DAPD.

A government spokesman said Tuesday evening he could not tell if Merkel was at that point aware of the latest downgrade. He declined to be named in line with government policy.

The FTSE 100 index of leading British shares closed down 2.6 percent, Germany's DAX slid 2.7 percent and the French CAC-40 in France ended 3.8 percent lower.

Greek and Portuguese stocks were pounded — down 6.7 percent and 5.4 percent, respectively — while their market borrowing costs went through the roof. The interest rate for Greek two-year bonds jumped to a massive 18 percent.

The interest rate gap, or spread, between Portugese and benchmark German 10-year bonds rose about half a percentage point Tuesday to reach its highest point since the euro came into circulation. The higher the gap, the less confidence in Portugal; its bonds on Tuesday had an interest rate 5.86 percentage points higher than German bonds.

Both the Portugese and Greek governments have imposed budget cutbacks against political resistance from unions at home. Markets have been skeptical that they can push through enough cuts, given political resistance, to put their finances in order.

Both governments responded with alarm at the downgrades.

"This decision will not help markets to calm down, but will, on the contrary, contribute for their turbulence," Portugese Finance Minister Fernando Teixeira dos Santos said.

Greek Finance Minister George Papaconstantinou said the downgrade "does not reflect the real state of our economy, nor the fiscal situation, nor the ongoing negotiations which have the very realistic propects that they will be completed successfully in the next few days."

Papaconstantinou said Greece will pull through.

"One wishes that Europe had acted a little differently. Three and four months ago we were saying that the mechanism must be ready and it must be detailed, that the markets must know what exactly is going. Unfortunately, for a series of political reasons, we are down to the wire," he said.

The crisis has highlighted the eurozone's inability to keep governments from undermining the euro by running up big debts. Rules that limit deficits to 3 percent of gross domestic product have been widely flouted, and EU officials are talking about ways to strengthen them.

[Limbo]

This is the inevitable outcome of the welfare state where big governments and big unions suck the finances dry over time. As Obama kills our free market economy to create a welfare state, Americans will consume less and therefore the U.S.A. will stop being a major driver of the global economy, just making things worse for everyone.

Things could get ugly as resources and wealth get more scarce. leftists hate capitalism, but they sure like American money. Just look at Chavez and how he uses oil money created by our free market to prop up his regime with all the handouts he gives to his constituents. Without a huge transfer of wealth from a free market economy, his socialist economy would utterly collapse, yet he still rails against the evils of the free market. Unless Obama is stopped, Chavez won't have to worry about all that dirty capitalist money flowing into his pockets for long.

[AceTracer]

This is the inevitable outcome of the welfare state where big governments and big unions suck the finances dry over time. As Obama kills our free market economy to create a welfare state, Americans will consume less and therefore the U.S.A. will stop being a major driver of the global economy, just making things worse for everyone.

It never ceases to amaze me to see folks fabricate these alternate realities for themselves, devoid of actual facts to tarnish their cherished beliefs.

First, the Greek financial crisis, like the global financial crisis in general, was caused by Wall Street meddling. In Greece's case, by credit default swaps initiated by Goldman Sachs (http://www.businessweek.com/news/2010-02-15/greece-s-goldman-sachs-swaps-spawn-eu-dispute-on-disclosure.html). It's the free market that caused this, not socialism. To even suggest otherwise is ludicrous.

Second, Obama is not a communist. He does not want to "kill our free market economy to create a welfare state" and you have no evidence to back up this claim. The only thing that even comes close is helping to pass a crappy bill that requires you buy health insurance, and subsidizes health care for some poor people living in this country. That's not socialism, that's a half-assed attempt to fix a horrible flawed system. The fact that he didn't even put his weight behind a public option (which he could have) shows that his views are very moderate on this issue.

Third, what if we did turn into a welfare state? What's wrong with that? You know which country has the soundest banking system? Canada. You know who's second? Sweden. You know where the US is? 40th, behind Namibia. (Source (http://www.reuters.com/article/idUSTRE4981X220081009)) The highest taxes in the world are paid in the cradle-to-grave welfare states of Scandinavia. Coincidentally, they also rank amongst the richest nations per capita with the highest quality of life. Meanwhile, countries that are devoid of strong central governments, with no taxes and true free markets (run by pirates and drug lords) all wallow at the bottom of the list.

And finally, I don't know who you're trying to convince that communism is flawed. We know this already. Nobody here, as far as I know, is a communist, so you're preaching to the choir.

[Limbo]

First, the Greek financial crisis, like the global financial crisis in general, was caused by Wall Street meddling. In Greece's case, by credit default swaps initiated by Goldman Sachs (http://www.businessweek.com/news/2010-02-15/greece-s-goldman-sachs-swaps-spawn-eu-dispute-on-disclosure.html). It's the free market that caused this, not socialism. To even suggest otherwise is ludicrous.


Dude, you crack me up. Did you even read the story? Probably would be a good idea to read things before you use them as supposed evidence for your revisionist history. The story says Greece got involved in sneaky dealings with Goldman Sachs to try and cover up the fact they were/are a fiscal basket case.

Some quotes from your link:


A dispute is unfolding about how long European Union officials have known that Greece used derivatives to conceal its growing budget deficit.


“Greece falsified deficit statistics, and that can’t be legal,” said Wolfgang Gerke, president of the Bavarian Center of Finance in Munich and honorary professor at the European School of Business. “Greece needs to be kicked out of the EU because otherwise there will be new copycats, and that could lead to the next catastrophe on financial markets.”

EU regulators pressed Greece yesterday to disclose details of currency swaps after an inquiry by the country’s finance ministry uncovered a series of agreements with banks that it may have used to conceal mounting debt.

Now you say:



Second, Obama is not a communist. He does not want to "kill our free market economy to create a welfare state" and you have no evidence to back up this claim. The only thing that even comes close is helping to pass a crappy bill that requires you buy health insurance, and subsidizes health care for some poor people living in this country. That's not socialism, that's a half-assed attempt to fix a horrible flawed system. The fact that he didn't even put his weight behind a public option (which he could have) shows that his views are very moderate on this issue.


He took what he could get because there were several moderate democrats in the senate that wouldn't vote for a public option. This in no way is a reflection of what Obama ultimately wants. He has said numerous times on the record his preference is single payer.

See here for example:
Obama on his preferences for healthcare. (http://www.youtube.com/watch?v=p-bY92mcOdk)


Then you said:



Third, what if we did turn into a welfare state? What's wrong with that? You know which country has the soundest banking system? Canada. You know who's second? Sweden. You know where the US is? 40th, behind Namibia. (Source (http://www.reuters.com/article/idUSTRE4981X220081009)) The highest taxes in the world are paid in the cradle-to-grave welfare states of Scandinavia. Coincidentally, they also rank amongst the richest nations per capita with the highest quality of life. Meanwhile, countries that are devoid of strong central governments, with no taxes and true free markets (run by pirates and drug lords) all wallow at the bottom of the list.

And finally, I don't know who you're trying to convince that communism is flawed. We know this already. Nobody here, as far as I know, is a communist, so you're preaching to the choir.

The whole communism thing is a strawman so I will ignore that.

I am a Canadian (soon to have dual citizenship), so I know all about Canada. The Canadian economy is largely being propped up with oil money and money flowing in from outside, especially Hong Kong and Mainland China.

Statistics like "soundest banking system" are obviously subjective. The problem with the American banking system is mostly a result of the community reinvestment act, a misguided effort by Carter and Clinton to expand minority home ownership. The banks tried to get rid of these risky morgages (that they were forced to take on by government dictate) by selling them. That's how we got to where we are today.

See here for a good explanation of the mortgage meltdown (http://www.independent.org/pdf/policy_reports/2008-10-03-trainwreck.pdf):

Summary:


This report concludes that, in an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-underwriting standards as an “innovation” in mortgage lending. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The price bubble, along with relaxed lending standards, allowed speculators to purchase homes without putting their own money at risk.

[AceTracer]

I am a Canadian (soon to have dual citizenship), so I know all about Canada.
Interesting. Are you by any chance from Alberta?


The Canadian economy is largely being propped up with oil money and money flowing in from outside, especially Hong Kong and Mainland China.
And what is Sweden's economy propped up with? ABBA records?

[AceTracer]

The whole communism thing is a strawman so I will ignore that.
What the hell? How is that a straw man? Your entire post was about how Obama wants to kill the free market and welfare states are bad and Hugo Chavez.

If I'm misrepresenting your argument, then I don't know what your argument is.

[Limbo]

Interesting. Are you by any chance from Alberta?


And what is Sweden's economy propped up with? ABBA records?

I was born and raised in Vancouver.

Sweden is a special situation. Because they were officially neutral in both world wars, they never had to rebuild their infrastructure or economies.

On top of that, they are blessed with a wealth of natural resources (timber, minerals, etc) and hydroelectric electricity.

Keep in mind that the birthrate is so low in Sweden that the population would be decreasing sharply if not for immigration. With tax rates up to 70-80%, who the hell can afford to have a large family?


What the hell? How is that a straw man? Your entire post was about how Obama wants to kill the free market and welfare states are bad and Hugo Chavez.

If I'm misrepresenting your argument, then I don't know what your argument is.

It's not so simple. I personally think Obama is a neo-Marxist a la Saul Alinsky. Having said that, there are a ton of greedy croney capitalists high up in the democratic party who want to corrupt the system to enrich themselves, or at least exempt themselves from measures that would affect their own personal wealth (like Soros and Buffet). They see Obama as a useful idiot who can be manipulated to get what they want.

The United States has always been different than Europe because the average schmuck can make it big since there is opportunity for all. In Europe, the elite ruling class live like kings while everyone else has to grind it out with little hope of joining the ranks of the wealthy.

[AceTracer]

Sweden is a special situation. Because they were officially neutral in both world wars, they never had to rebuild their infrastructure or economies.

On top of that, they are blessed with a wealth of natural resources (timber, minerals, etc) and hydroelectric electricity.

Keep in mind that the birthrate is so low in Sweden that the population would be decreasing sharply if not for immigration. With tax rates up to 70-80%, who the hell can afford to have a large family?
What about Norway, Denmark, and Finland? Or even the rest of the European Union? The GDP of the European Union is now greater than that of the US (Source (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal))) and all of those countries are more "socialist" than the US.


It's not so simple. I personally think Obama is a neo-Marxist a la Saul Alinsky.
That's your opinion and you're entitled to it, but you've provided nothing to back this up. Hugo Chavez is a Marxist; Barack Obama is at best a moderate centrist. And if you disagree with me, then what do you think about people to the left of Obama? Harper is more liberal than Obama, and he's the leader of the Canadian conservative party! Is Harper a communist too? Is every politician to the left of Obama a communist? Because that pretty much includes every leader of every industrialized nation in the world. The world is run by a bunch of Marxists, according to you.

It's the hyperbole that gets me. I understand if you don't agree with Obama; I don't agree with Obama either (and that's why I didn't vote for him). But I don't understand the hyperbole; the accusations that he's a socialist, a communist, a Nazi, and all the rest. He very clearly isn't, whether you believe it or not.


The United States has always been different than Europe because the average schmuck can make it big since there is opportunity for all. In Europe, the elite ruling class live like kings while everyone else has to grind it out with little hope of joining the ranks of the wealthy.
Once again, this is the exact opposite of the truth. As you mentioned, because of high taxes and welfare states, this simply isn't possible in Europe. I understand if you disagree with the idea of "spreading the wealth around", as Europeans do, but to also claim that there is huge gap between the rich and poor in Europe is baffling. These arguments completely contradict each other. And funnier still, this is exactly what the US is like, a ruling class of super rich that fuck over the middle class, as they are doing right now.

Again, I understand your position, you love free market capitalism and hate socialism. That's fine, you're entitled to your opinion. But you can't make outrageously false claims like most Europeans are stuck under the thumb of a ruling class, which completely contradict your argument against socialism.

[AceTracer]

I was born and raised in Vancouver.
I love Vancouver. I've visited ten times and have thought about eventually moving there.

As I'm sure you know, it's consistently voted as the world's best place to live (http://news.bbc.co.uk/2/hi/4306936.stm), thanks in part to all the things you seem to hate.

[Limbo]

I love Vancouver. I've visited ten times and have thought about eventually moving there.

As I'm sure you know, it's consistently voted as the world's best place to live (http://news.bbc.co.uk/2/hi/4306936.stm), thanks in part to all the things you seem to hate.

Vancouver is a great place to live, but there are some big negatives like traffic, sky-high housing costs and the never ending rain. The summers are to die for though.

We could never afford to move back there now that we have been gone for 10 years.

The only reason I left is because when I graduated I couldn't get a job in my field. Getting work in the U.S. was easier and now that I live in Arizona I am hooked on the sunny warm weather.

Honestly the thing I miss the most besides family is the food. You can get a huge plate of sashimi, almost more than you can eat, for under $10.

[AceTracer]

I live in Arizona I am hooked on the sunny warm weather.
Arizona, eh? That explains that. I live in Portland, so Vancouver isn't a huge difference. I moved from Miami, where I lived for 25 years. I've had enough sun for a lifetime.


Honestly the thing I miss the most besides family is the food. You can get a huge plate of sashimi, almost more than you can eat, for under $10.
You don't have to tell me; I crave Vancouver sushi all the time. I never even liked fish, especially raw fish, before I visited Vancouver.

[Montanarchist]

This is the inevitable outcome of the welfare state where big governments and big unions suck the finances dry over time. As Obama kills our free market economy to create a welfare state,.A free market is by definition one where private property is respected without compromise. In the US this hasn't bene the case for quite some time, if it ever was, and for the past century the welfare/warfare state has grown to enormous proportions. Obama isn't doing anything new.

Americans will consume less and therefore the U.S.A. will stop being a major driver of the global economy, just making things worse for everyone.This is something I'll have to disagree with. The industrial production has moved to east asia and they are fully capable of driving their economy. Some painful recalculation would have to be done, but they have the means to work just fine in their time.
Third, what if we did turn into a welfare state? What's wrong with that? You know which country has the soundest banking system? Canada. You know who's second? Sweden. You know where the US is? 40th, behind Namibia. (Source) The highest taxes in the world are paid in the cradle-to-grave welfare states of Scandinavia. Coincidentally, they also rank amongst the richest nations per capita with the highest quality of life. Meanwhile, countries that are devoid of strong central governments, with no taxes and true free markets (run by pirates and drug lords) all wallow at the bottom of the list.There's a couple of problems here.

1. Canada and Sweden both have a long history of unregulated banking markets that weren't really placed under state control until ww2. Their banks are quite well functioning even today thanks to to this.

2. The economic history of Sweden does actually hold a lot of unexpected facts that aren't well known. The banking system (which you read more about here (http://www.google.se/url?sa=t&source=web&ct=res&cd=1&ved=0CAgQFjAA&url=http%3A%2F%2Fwww.econjournalwatch.org%2Fpdf%2F BrionesRockoffDoEconomistsAugust2005.pdf&rct=j&q=Do+Economists+Reach+a+Conclusion+on+Free-Banking+Episodes%3F&ei=OJfZS4GwNcGQOLuy-dAP&usg=AFQjCNGpfjWs_BpZDJKux3aHL28rBNtdPQ)) was one of the (if not the) freest in the world and there was only one instance of a bank that went bankrupt during the 78 years that system existed. This can then be tied with their financial minister in the mid 19th century Johan Gripenstedt (http://en.wikipedia.org/wiki/Johan_August_Gripenstedt). A champion for free trade and classical liberalism.
The wealth that swedish govt. nowadays shuffle around was created long before the high tax policies that came about in the 1960s.

3. Even though it's considered heterodox economics, I do think that we need to distinguish between Binary intervention and Triangular intervention. Scandinavia has a lot of the former but less of the latter. High taxes and welfare are forms of intervention, but it's not as manipulative and as useful of a tool of govt. as Triangular intervention which is to directly influence, regulate and/or take control of transactions. The USA has much more of this.

4. Swedens banking system is heading for financial armageddon, just like everybody else. Read: http://www.nakedcapitalism.com/2009/10/sweden-prepares-for-financial-collapse-in-latvia-and-major-bank-losses-at-home.html

[yee-haw]

One thing i always admire about monty, Plenty of support to prove his views and why!

Great post!

[AceTracer]

One thing i always admire about monty, Plenty of support to prove his views and why!

Great post!
Nice to see the moderator of this forum appreciates cogent, well-cited arguments; I'll continue to do the same. Thanks! :)

[Limbo]

A free market is by definition one where private property is respected without compromise. In the US this hasn't bene the case for quite some time, if it ever was, and for the past century the welfare/warfare state has grown to enormous proportions. Obama isn't doing anything new.
This is something I'll have to disagree with. The industrial production has moved to east asia and they are fully capable of driving their economy. Some painful recalculation would have to be done, but they have the means to work just fine in their time. There's a couple of problems here.

1. Canada and Sweden both have a long history of unregulated banking markets that weren't really placed under state control until ww2. Their banks are quite well functioning even today thanks to to this.

2. The economic history of Sweden does actually hold a lot of unexpected facts that aren't well known. The banking system (which you read more about here (http://www.google.se/url?sa=t&source=web&ct=res&cd=1&ved=0CAgQFjAA&url=http%3A%2F%2Fwww.econjournalwatch.org%2Fpdf%2F BrionesRockoffDoEconomistsAugust2005.pdf&rct=j&q=Do+Economists+Reach+a+Conclusion+on+Free-Banking+Episodes%3F&ei=OJfZS4GwNcGQOLuy-dAP&usg=AFQjCNGpfjWs_BpZDJKux3aHL28rBNtdPQ)) was one of the (if not the) freest in the world and there was only one instance of a bank that went bankrupt during the 78 years that system existed. This can then be tied with their financial minister in the mid 19th century Johan Gripenstedt (http://en.wikipedia.org/wiki/Johan_August_Gripenstedt). A champion for free trade and classical liberalism.
The wealth that swedish govt. nowadays shuffle around was created long before the high tax policies that came about in the 1960s.

3. Even though it's considered heterodox economics, I do think that we need to distinguish between Binary intervention and Triangular intervention. Scandinavia has a lot of the former but less of the latter. High taxes and welfare are forms of intervention, but it's not as manipulative and as useful of a tool of govt. as Triangular intervention which is to directly influence, regulate and/or take control of transactions. The USA has much more of this.

4. Swedens banking system is heading for financial armageddon, just like everybody else. Read: http://www.nakedcapitalism.com/2009/10/sweden-prepares-for-financial-collapse-in-latvia-and-major-bank-losses-at-home.html

Unlike the American government which has been forcing banks to make risky loans, the Canadian government has rules that discourage banks from lending money to people who are not credit worthy. Getting a loan in Canada is much more difficult and risky types of loans are not available (like zero down arms, liar loans, etc). This is what makes the banking system more stable in Canada. It's not a lack of regulation per se, it is counter-productive regulations that have damn near killed the American banking system and have had a ripple effect throughout much of the world.

I agree with much of your post except I do think Asia, especially countries like China, Japan, Korea, etc. are still quite dependent on American consumption of what they produce. Europe probably not so much. Most of Europe is in deep doo doo though. The last thing we want to do is adopt their welfare state policies as they are clearly not sustainable.

[Limbo]

WOW, amazing. The New York Times posts an article that actually questions, albeit in a rather muted way, something the Democrats are doing. I haven't seen anything like this in years.

The fact that people like Chris Dodd and Barney Frank are still crafting laws that affect our financial system boggles my mind and is a testament to how corrupt the political system and the relationship between the press and government has become.

See the article here (http://www.nytimes.com/2010/05/03/business/economy/03crisis.html?ref=todayspaper):



Senate Financial Bill Misguided, Some Academics Say
By BINYAMIN APPELBAUM and SEWELL CHAN
Published: May 2, 2010

As Democrats close in on their goal of overhauling the nation’s financial regulations, several prominent experts say that the legislation does not even address the right problems, leaving the financial system vulnerable to another major crisis.
Related

Some point to specific issues left largely untouched, like the instability of capital markets that provide money for lenders, or the government’s role in the housing market, including the future of the housing finance companies Fannie Mae and Freddie Mac.

Others simply argue that it is premature to pass sweeping legislation while so much about the crisis remains unclear and so many inquiries are in progress.

“Until we understand what the causes were, we may be implementing ineffective and even counterproductive reforms,” said Andrew W. Lo, a finance professor at the Massachusetts Institute of Technology. “I understand the need for action. I understand the need for something to be done. But what I expect from political leaders is for them to demonstrate leadership in telling the public that we need to proceed about this in a much more deliberate and rational and thoughtful way.”

Senate Republicans echoed some of these concerns as they delayed debate on the legislation last week. Democrats agree that significant issues remain to be addressed. But they say that the government must press forward in responding to the problems that already are clear.

The bill, which was introduced by Christopher J. Dodd, chairman of the Senate Banking Committee, would extend oversight to a wider range of financial institutions and activities. It would create a new agency to protect borrowers from abuse by lenders, including mortgage and credit card companies. And it seeks to ensure that troubled companies, however large, can be liquidated at no cost to taxpayers.

A diverse group of critics, however, say the legislation focuses on the precipitators of the recent crisis, like abusive mortgage lending, rather than the mechanisms by which the crisis spread.

Gary B. Gorton, a finance professor at Yale, said the financial system would remain vulnerable to panics because the legislation would not improve the reliability of the markets where lenders get money, by issuing short-term debt called commercial paper or loans called repurchase agreements or “repos.”

The recent crisis began as investors nervous about mounting subprime mortgage losses started demanding higher returns, then withholding money altogether. The government is now moving to prevent abusive mortgage lending, but Mr. Gorton said investors could just as easily be spooked by something else.

The flight of investors is the modern version of a bank run, in which depositors line up to withdraw their money. The banking industry was plagued by runs until the government introduced deposit insurance during the Great Depression. Professor Gorton said the industry had now entered a new era of instability.

“It is unfortunate if we end up repeating history,” Professor Gorton said. “It’s basically tragic that we can’t understand the importance of this issue.”

Treasury Secretary Timothy F. Geithner agreed in April testimony before the House Financial Services Committee that “more work remains to be done in this area,” but he said that regulators could address the issue without legislation. The government plans to require lenders to hold larger reserves against unexpected losses and to require that they keep money on hand to meet short-term needs.

David A. Skeel Jr., a corporate law professor at the University of Pennsylvania, said it would be a mistake for Congress to leave the drafting of these standards to the discretion of regulators.

“Regulators working right now will be tough,” Professor Skeel said. “But we know from history that as soon as this legislative moment passes, the ball is going to shift back into Wall Street’s court. As soon as the crisis passes, what inevitably happens is that the people that are paying the most attention are the banks.”

A second group of critics say the government helped to seed the crisis through its efforts to increase home ownership, including the role of Fannie Mae and Freddie Mac in buying mortgage loans to make more money available for lending. The companies are now owned by the government after incurring enormous losses on loans that borrowers could not afford to repay.

Lawrence J. White, a finance professor at New York University, said it made no sense to overhaul financial regulation without addressing the future of federal housing policy. He said he was trying to find the strongest possible words to describe the omission of Fannie Mae and Freddie Mac from the legislation.

“It’s outrageous,” he finally said.

Republicans have repeatedly criticized the administration for advancing legislation that does not address the companies’ future. The Obama administration says drafting a new housing policy is on its agenda for next year.

Other critics warn that the proposed legislation would insert the government deeply into the financial markets, creating new distortions and seeding future crises. They say the focus of financial reform should instead be on increased transparency.

Andrew Redleaf and Richard Vigilante, hedge fund managers who started warning investors in 2006 that a housing crisis was inevitable, proposed a minimalist version of reform in their recent book “Panic.” They want to require all financial institutions, including investment banks and hedge funds like their own, to disclose, at least once a week, every position in tradable securities.

“The Dodd bill is almost entirely irrelevant,” Mr. Vigilante said in a telephone interview. “All it does is strengthen what we’ve had for years,” a system that depends on judgments made by regulators behind closed doors.

Proponents of the legislation say that it significantly expands transparency, for example by requiring many derivatives contracts to trade in public view. But they say that the government also needs to expand the scope of its oversight because the worst excesses that led to the crisis began and flourished at nonbank financial institutions that were not subject to federal regulation.

The most basic critique comes from Professor Lo and others who say that Congress is moving too quickly. The origins of the crisis remain a subject of intense controversy. Investigations continue to unearth surprising information. The Financial Crisis Inquiry Commission, a bipartisan panel created by Congress, is not scheduled to report until December. Why not wait, they ask, until the targets are clearer?

Phil Angelides, the chairman of the inquiry commission and a Democrat, says that the problems raised by the crisis will not be solved in one stroke and that he supports the Democratic push to begin the process soon.

But the critics point to the words of Nicholas F. Brady, a former Treasury secretary who led the bipartisan investigation into the 1987 stock market crash: “You can’t fix what you can’t explain.”

[MrJim]

This just in:


Stocks plunged around the world Tuesday as fears escalated that Europe might fail to contain Greece's debt problems. The Dow Jones industrial average fell 225 points, its biggest drop in three months.

Investors worry that Europe would have trouble bailing out larger countries like Spain and Portugal because the continent's governments spent so much supporting Greece. There are also concerns that the large debt among European nations could upend a global economic recovery.

Analysts have said that the problems, over the long term, could lead to a collapse of the euro. Sixteen countries use the common currency. The euro fell against the dollar, hitting its lowest level in a year.


'Collapse of the euro'? Pretty extreme viewpoint, given all the attention to U.S. deficits and currency decline over the past several years. Wonder what England Expects thinks of all this?

[Limbo]

This just in:



'Collapse of the euro'? Pretty extreme viewpoint, given all the attention to U.S. deficits and currency decline over the past several years. Wonder what England Expects thinks of all this?

Europe, after so many years of the welfare state, is SCREWED.

Have a look at the world's biggest debtor nations. Thanks to Obama, we are now on the list at number 20, and will be rocketing up the list over the next decade as we adopt European style welfare state policies.

So European socialism spreads the wealth... unfortunately since it doesn't create much wealth, the wealth it redistributes is actually borrowed.



20. United States
External debt (as % of GDP): 95.9%

19. Australia
External debt (as % of GDP): 108.8%

18. Hungary
External debt (as % of GDP): 124.2%

17. Italy
External debt (as % of GDP): 154.6%

16. Greece
External debt (as % of GDP): 175.3%

15. Spain
External debt (as % of GDP): 184.7%

14. Germany
External debt (as % of GDP): 189.4%

13. Finland
External debt (as % of GDP): 205.7%

12. Norway
External debt (as % of GDP): 208.9%

11. Hong Kong
External debt (as % of GDP): 218.8%

10. Portugal
External debt (as % of GDP): 231.5%

9. France
External debt (as % of GDP): 247.2%

8. Austria
External debt (as % of GDP): 268.9%

7. Sweden
External debt (as % of GDP): 275%

6. Denmark
External debt (as % of GDP): 315.2%

5. Belgium
External debt (as % of GDP): 345.6%

4. Switzerland
External debt (as % of GDP): 390%

3. Netherlands
External debt (as % of GDP): 395.6%

2. United Kingdom
External debt (as % of GDP): 427.6%

1. Ireland
External debt (as % of GDP): 1,352%

Now why the hell would we wanna go down that road?

[Montanarchist]

External government debt reaching 100% of GDP is not the only problem we're looking at. There's a huge financial sector debt reaching 350% of GDP that is causing the most trouble, and that is something most of the sates on that list do not suffer from (UK being the most prominent exception that I'm aware of) and not to mention the trade deficit, which is the worst in the world for the US and actually positive for Germany.

[Limbo]

External government debt reaching 100% of GDP is not the only problem we're looking at. There's a huge financial sector debt reaching 350% of GDP that is causing the most trouble.

Well, that's not the end of it either. I don't think the numbers I posted include all levels of government. Most states are running huge deficits too. Just look at California and New Jersey which are close to insolvency and will probably need to be bailed out.

In regards to the financial sector debt you were referring to, there is a distinct lack of accountability in the financial sector itself. Companies can hide risk through the use of a confusing network of risk insurance and can thus avoid taking responsibility for bad management decisions. The other problem is the corruption in Washington. The relationship between the government and the leaders in large financial sector organizations is very tight. This forms an oligarchy of sorts and will thwart meaningful and positive reforms. It's a really bad situation quite honestly.

[Patt]

And yet OUR Fed opens an uncapped line of credit to help bail out the banks in Europe. Those same banks most likely will show up in the Fed Audit that's being called for on TARP.

Nowhere on this list do I see where any of the countries involved owe the United States. I'm thinking I want my money back. Pronto.

http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html

[MrRee]

Me too Patt !!!!!
Hell we can't get our OWN economy fixed so why do they think they can help another?