Tag Archives: Der Spiegel

August 27, 2011 · 01:00

Chaos in Financial Markets are “Potentially Dangerous for Humanity”

You don’t say! What I find most surprising, however, is that there actually IS a Centre for the Study of Capital Market Dysfunctionality: It was founded in 2007 by British Paul Woolley, after working several years as a stock broker, and as economist and adviser at the International Monetary Fund (IMF). Guess he knows what he’s talking about. In an interview with Spiegel Online, Britain’s new found financial guru, Dr Paul Woolley says the market stress in not only dangerous for those who work there, but also for everyone else. And he has some investment advise.

“Stop paying performance fees to managers who increase the worth of funds because it encourages gambling.”

Paul Woolley

“The developments in recent weeks have made it quite clear that the markets don’t function properly. Things are spinning out of control and are potentially dangerous for society. Only a fraternity of academic high priests connected to the finance markets is still speaking of efficient markets. Still each market participant is pursuing their own selfish interests. The market isn’t reaching equilibrium — it’s falling into chaos,” Dr. Paul Woolley says.

Here are some more highlights from the Spiegel interview:

“The finance sector can – and is – growing until it overwhelms the economy. In good years the US finance industry cashes in on more than 40 percent of all corporate profits.”

“Most fund managers follow only the newest trends and strengthen them by doing so. In the short term that leads to success, but in the long term it leads to a crash. “

“The finance industry is characterized by many innovations. Because the customers hardly understand their innovative products, banks make amazing returns. “

“The big investors are in a position to force their service providers, the banks, fund managers and bankers into better behavior. “

” Big investors should also insist that trading take place on a public market. “

Paul Woolley’s career has spanned the private sector, academia and policy-orientated institutions.

After several years of practical experience in a firm of stockbrokers, latterly as a partner in his firm, he studied Economics at the University of York (UK) receiving BA (1970) and D Phil (1976).

He held the Esmée Fairbairn Lectureship in Finance at York 1970-76, also serving as Specialist Advisor to the House of Lords Committee on the EEC 1975-6.

He then moved to the International Monetary Fund 1976-83, initially as an Economist and later as Advisor and then head of the Division responsible to the Fund’s borrowing and investment activities.

Returning to the UK, he was for four years a Partner and Director on the main board of merchant bank, Baring Brothers and its various subsidiaries.

In 1987 he co-founded, and was Managing Director of, GMO Woolley, the London affiliate of GMO, the Boston-based fund management firm. He was a Partner and served on the main GMO board (1998 – 2003).

He retired as Chairman of GMO Europe in 2006.

He returned to academic life in 2007, funding the Paul Woolley Centre for the Study of Capital Market Dysfunctionality at the London School of Economics.

He is now also Chairman of the Advisory Board for the Centre and a full-time member of the research team.

Similar centres have been set up at the University of Toulouse and at UTS in Sydney.

Mr. Woolley is an Honorary Professor of the University of York, Senior Fellow at LSE and an Adjunct Professor at UTS.

Read the full interview with Dr. Woolley at Spiegel ONLINE.

I like this guy’s style – an interview with Wolfgang Schäuble (politics.ie)
Here’s What George Soros Bought and Sold Last Quarter (fool.com)
Market chaos: Gold and Yen offer investors safe haven (independent.co.uk)
Capitalism is the religion of the USA and its pulpit is open 24/7 right in our living rooms (iflizwerequeen.com)
MIT Unravels the Secrets Behind Collective Intelligence – Hint: IQ Not So Important (singularityhub.com)
Debt Wars: IMF and international banking policies a root cause behind social chaos (theextinctionprotocol.wordpress.com)
Der Spiegel Interview with George Soros (ritholtz.com)

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Filed under International Econnomic Politics, Laws and Regulations, National Economic Politics, Philosophy

Tagged as Business, Capital market, Chief executive officer, Der Spiegel, Doctor of Philosophy, Economic, Finance, Funds, International Monetary Fund, Investing, Investment management, London School of Economics, United States, University of York

May 10, 2011 · 20:54

The Masters of Lies

The Austrian daily newspaper, Der Standard, describe the eurogroup chief, Jean-Claude Juncker a “master of lies”, in the aftermath of this weekends not-so-secret meeting between the top EU leaders. The newspaper also see Juncker’s handling of the whole farce as “a fatal error that multiplies the scepticism of the citizens.”

“Juncker and his Round Table should be reminded that it was the small states in May 2010 that made the rescue package for Greece possible in the end.”

Der Standard

EU leaders, with Jean-Claude Juncker in the middle at the back.

Criticism is now mounting against eurogroup chief Jean-Claude Juncker for lying about a secret meeting last Friday of selected EU finance ministers in his native country Luxembourg to discuss the worsening Greek debt situation.

A series of furious attacks on the chair of the group of EU states that use the single currency have appeared in the European press over the last 48 hours, arguing that Mr. Juncker can no longer be trusted.

Ministers and their spokespeople across the euro zone had first denied, or refused to comment, on a report which appeared in Spiegel Online revealing that a secret meeting of senior EU officials was being held in a Luxembourg castle to consider a Greek exit from the euro.

The same officials later confirmed that the meeting took place, but that Greece returning to the drachma was never on the table.

Juncker had apparently invited finance ministers from France, Germany, Spain, and Italy, ostensibly under the aegis of the EU members of the G20 (although the UK, a G20 member, was absent), along with Greece, the European Central Bank and Olli Rehn, the EU economy commissioner.

Juncker’s spokesman, Guy Schuller, was quoted by Reuters as saying:

“I totally deny that there is a meeting, these reports are totally wrong.”

This absurd event comes just a week after the Luxembourgh prime minister admitted the that over the course of his career, despite his Catholic upbringing, he often “had to lie” in order not to feed rumours and that economic policy was too important to be discussed in public. “I am for secret, dark debates,” he quipped, according to an EUobserver report.

German press agency DAPD quoted him as saying:

“When the going gets tough, you have to lie.”

On Monday, Austrian daily newspaper, Der Standard, attacked the Luxembourg prime minister calling him a “master of lies,” also complaining that Juncker had invited the larger EU states but not the likes of Austria or Finland and describined the move as “a fatal error that multiplies the scepticism of the citizens.”

“Juncker and his Round Table should be reminded that it was the small states in May 2010 that made the rescue package for Greece possible in the end,” the paper writes in an editorial.

Germany’s Suddeutsche Zeitung states that no one can believe what the EU leaders, particularly Juncker, says any more regarding the stability of the euro zone .

“Seldom have we seen politicians acting as irresponsibly as they did on Friday evening. In Berlin, Brussels, Paris, Rome and Luxembourg, officials were silent, deceptive or just plain lied,” the paper thundered.

“Within a matter of hours, the governments of the euro countries managed to fritter away the last remaining trust the people of Europe still have in the bailout action.”

“Who in the future is supposed to believe that Greece isn’t interested in leaving the euro zone if Luxembourg Prime Minister Jean-Claude Juncker, who heads the Euro Group, is taking the lead on the deception?” the German paper writes.

A frustrated European diplomat told EUobserver the handling of the meeting was “amateur.”

Adding: “What happened is silly. How is anyone going to trust what we say now?”

Meanwhile, Greek authorities are going after Spiegel Online for reporting “false news” about Greece considering withdrawal from the euro.

The Greek prosecutor has contacted German counterparts, requesting assistance in tracking down those responsible at Spiegel Online for the initial report.

On Wednesday, European Commission President Jose Manuel Barroso is to visit German Chancellor Angela Merkel to discuss the Greek conundrum and EU Council President Herman van Rompuy will also be dropping in on the German leader to consider the next steps in the crisis.

This meetings will not take place in secret in a Luxembourg castle, but in Berlin – and will be official – at least that’s what they say…

Related by the Econotwist’s:

Related articles:

Liar, Liar, European Pants on Fire! (thepressnet.com)
Attacks mount against Jean-Claude Juncker (politics.ie)
Greece Bailout Not Solving Debt Crisis (bigthink.com)

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Tagged as Der Spiegel, Der Standard, EUobserver, Eurogroup, European Union, Financial Markets, Health and Environment, International Econnomic Politics, International Politics, Jean-Claude Juncker, Law & Regulations, List of Prime Ministers of Luxembourg, Luxembourg, Macro Economics, Member State of the European Union, National Politics, Views, commentaries and opinions

May 9, 2011 · 11:14

Wolfgang Munchau: This Is a Political Crisis

I guess it was just a matter of time before the mainstream media and their economist’s discovered what I’ve been indicating for the last four, five months: The European crisis has transformed itself from an economic crisis to a political crisis.

“You cannot run a monetary union with the likes of Mr Sócrates, or with finance ministers who spread rumours about a break-up.”

Wolfgang Münchau

“They cannot even organise a private meeting. How, then, can they solve a debt crisis? The bungling of a not-so-secret gathering of finance ministers in Luxembourg on Friday night provides an object lesson in how the politics of euro zone crisis resolution is going wrong,” Mr. Münchau writes in today’s column in Financial Times.

The drama starting on Friday evening rapidly turned into another political farce, as pointed out by this blogger the same night.

In today’s column in Financial Times Deutschland, Wolfgang Münchau, makes a summary of what we have learned from Friday’s leak to the Spiegel Online:

The German news site’s story said Greece was considering leaving the euro zone, and that finance ministers were holding a secret meeting to discuss the issue.

The story also offered the intriguing detail that Wolfgang Schäuble, the German finance minister, had a report in his briefcase warning him of the prohibitive costs of a Greek exit.

Earlier that Friday evening, the spokesman for Jean-Claude Juncker, the prime minister of Luxembourg who also has responsibility for finance, flatly denied that the meeting was taking place at all.

That statement was obviously untrue.

The meeting ended on Friday night with the announcement that there was no discussion on a Greek exit or a Greek restructuring. I very much doubt that this statement – or indeed any official statement on the euro zone crisis – was true either.

It is my understanding that this meeting, and numerous others preceding it, discussed the whole gamut of options, including, of course, a restructuring of Greek debt.

But the fact that options are being discussed does not mean they are being pursued.

I am fairly sure that Greece is not preparing to leave the euro zone, and that the European Union rejects an involuntary debt restructuring– for now that is.

The reason for the frantic diplomatic activity is that the euro zone is running out of easy options for dealing with Greek debt.

There are valid objections to every proposal. An exit is too risky. A haircut – a loss for creditors on the outstanding principal – would kill the country’s banking system and land the European Central Bank with losses approaching €100bn.

A voluntary restructuring would not do enough to reduce the net present value of Athens’ debt to a sustainable level.

I understand collateralised lending – swapping old Greek bonds into new collateralised debt at a discount – has also been discussed.

This would subordinate every Greek bondholder, including of course the ECB.

The option to swap bonds of the European financial stability facility, the rescue umbrella, into peripheral bonds has been explicitly rejected by Berlin.

This would probably have been the cheapest option but Germany wanted to nip in the bud anything that smells of a euro zone bond.

The core issue in the euro zone crisis is not the overall size of the peripheral countries’ sovereign debt. This is tiny relative to the monetary union’s gross domestic product.

The area’s total debt-to-GDP ratio is lower than that of the UK, US or Japan.

From a macroeconomic point of view, this is a storm in a teacup.

The problem is that the euro zone is politically incapable of handling a crisis that is now contagious and has the potential to cause huge collateral damage.

The “grand bargain” – a series of institutional agreements on euro zone sovereign debt by the European Council in March – did not address the resolution of the current crisis.

That process is starting only now.

Those responsible have realised that, no matter which debt management option they choose, it will cost taxpayers hundreds of billions.

It is highly unlikely states will accept fiscal transfers of such a size without imposing extreme conditions on one another.

The political reason this crisis goes from bad to worse is an unresolved collective action problem.

Both sides are at fault.

The tight-fisted, economically illiterate northern parliamentarian is as much to blame as the southern prime minister who cares only about his own backyard.

The Greek government played it relatively straight but Portugal’s crisis management has been, and remains, appalling.

José Sócrates, prime minister, has chosen to delay applying for a financial rescue package until the last minute.

His announcement last week was a tragi-comic highlight of the crisis. With the country on the brink of financial extinction, he gloated on national television that he had secured a better deal than Ireland and Greece.

In addition, he claimed the agreement would not cause much pain.

When the details emerged a few days later, we could see that none of this was true.

The package contains savage spending cuts, freezes in public sector wages and pensions, tax rises and a forecast of two years’ deep recession.

You cannot run a monetary union with the likes of Mr Sócrates, or with finance ministers who spread rumours about a break-up.

Europe’s political elites are afraid to tell a truth that economic historians have known forever: that a monetary union without a political union is simply not viable.