Der Spiegel is nothing if not fair: after letting George Soros talk about dirty little Eurobonds last week, this week they gave space to those who think that people like Soros should be hunted with high powered rifles from airplanes:
[Macro speculators] are “like a pack of wolves” that seeks to tear entire countries to pieces, said Swedish Finance Minister Anders Borg. For that reason, they should be fought “without mercy,” French President Nicolas Sarkozy raged. Andrew Cuomo, the former attorney general and current governor of New York, once likened short-sellers to “looters after a hurricane.”
The whole article – titled “Out of Control: The Destructive Power of the Financial Markets” is a good reminder that, if you work in finance and are vacationing in Europe, you may want to tell people that you’re in a different line of work, like clubbing seals or pasteurizing cheese. It’s four pages of people referring to aggregated abstractions like the financial markets as “a monster” and conspiracy theories like this:
The truth is that the financial markets are controlling the politicians. If Sarkozy interrupts his vacation, the markets interpret his sudden return as a sign that the situation there is worse than they thought — and promptly set their sights on the country. And if there is an argument between Italian Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti, then the markets target Italy, because they doubt that the Italian government is serious about introducing austerity measures. The markets take advantage of every weakness and every rumor to speculate against one country after the next.
If you respond that Berlusconi’s extensive dithering may have, y’know, actually indicated that the Italian government wasn’t serious about introducing austerity measures, Der Spiegel will concede the point that the governments “share some of the blame” – but only because they haven’t done enough to root out the wolves:
Naturally the financial industry — all those who trade in securities, currencies, money and the products derived from them, known as derivatives — is not responsible for all the crises in the global economy. Politicians also share some of the blame, for having accumulated too much debt and given the banks too much leeway. But without the destructive power of the banks, hedge funds and other investment companies, the world would not be where it is today — at the edge of an abyss.
What most people would say is the cause of the current Eurozone crisis – overleverage by sovereigns, with most of the debt stuffed into banks who could treat it as risk-free because politicians wanted to lower their own cost of borrowing – is skimmed over pretty quickly there. And it’s not taken particularly seriously, since Der Spiegel points out that regulators are looking suspiciously at banks’ efforts to risk manage their long positions in European government debt:
At the beginning of the year, Deutsche Bank still had €8 billion invested in Italian government bonds. Six months later — shortly before the crisis intensified dramatically — it only had €1 billion worth of Italian bonds. Italian politicians apparently did not see this as a coincidence, and the country’s financial regulator CONSOB is now investigating the matter. Deutsche Bank also managed to get out of Greek government bonds before the crash in that country.
So DB did the wrong thing by selling bonds before they lost value? Maybe they should have bought CDS?
America is not exactly without conspiracy theories about the financial industry – but it’s hard to imagine our politicians calling the market as a whole “a monster,” as a German president did. Score a point, I suppose, for America’s more-or-less lack of defined benefits pensions, which means that 44% of Americans own mutual funds and some 47% own some equities or bonds. Combine that with our especially dysfunctional politics and I suspect that most American magazine readers, confronted with a fight between rampaging wolves and indebted governments, would take the side of the wolves. Even actual wolves.
Not so much, apparently, in Europe. Global Macro Monitor notes – accurately – that this article gives some insight into the popularity in Europe of a proposed “Tobin tax” on financial transactions, intended not only to raise revenue but also to impede volatility and push down financial industry profits. But that tax is too small-potatoes to even make Der Spiegel’s list of recommendations. Can you guess what’s number one on the list? Yes. Yes you can.
An effective financial market reform would have to treat shadow banks the same way all other banks are treated. This would mean completely banning so-called short selling, which is essentially betting on falling prices. It would also have to improve licensing requirements on new financial instruments and ban some that already exist, because they are designed solely for speculative purposes. It would also involve establishing a number of other rules that would make doing business significantly more difficult for banks, hedge funds and private equity firms.
The Destructive Power of the Financial Markets [Der Spiegel, via Big Picture, earlier]