Tuesday, August 30, 2011

Why We Are In For More Trouble Before We Get Less

It's because of asshats like this:
[John] Taylor is the chairman and CEO of FX Concepts, a hedge fund that specializes in currency speculation. It's the largest hedge fund of its kind worldwide, which is why Taylor is held partly responsible for the crash of the euro. Critics accuse Taylor and others like him of having exacerbated the government crisis in Greece and accelerated the collapse in Ireland.

People like Taylor 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 German tabloid newspaper Bild sharply criticized Taylor on its website, writing: "This man is betting against the euro." If that is what he is doing, he is certainly successful. While Greece is threatened with bankruptcy, Taylor is listed among the world's 25 highest-paid hedge fund managers.

Markets serve a purpose. They do whittle the fat out of inefficiencies. If a firm spends more than it should, for example, the markets respond by bidding the price of the stock down, based on the theory that lower earnings means lower value in the future. This is not a bad thing. It's in many ways a healthy measure of company's health.

Even currency speculation, in and of itself, is not a bad thing, necessarily. There's nothing wrong with profiting off a country's inability to rein in a fiscal problem. They are, after all, supposed to be run by knowledgable people.

Where it gets ugly, both on the private and public side of the equation, is when the speculators can control the game.

Ideally, markets are supposed to operate in a vacuum: everyone has equal and perfect knowledge of the future. This is why the SEC exists, along with any number of industry-standard self-regulators. They're supposed to keep the game honest, because everyone is supposed to have a fair roll of the dice.

In practice, as we've seen, things don't work that way. Investment bankers become politicians and more and more often, politicians become investment bankers. This means not only is information imperfect, it's gamed and massaged to benefit those in the know over those out of the loop.

Speculators are the worst. Not only will they game the information, they'll interpret every single development like it's a Talmudic passage.

Think of the birthers and the Obama flap, and now add trillions of dollars to the mix, and you'll see how dangerous this game can be.

But hey, the rules are the rules, and these idiots think they're playing by them!

"The big problem is that in some cases these politicians are looking for the easy way out and want to blame somebody else and say speculators are taking Europe apart, taking the euro down and ruining the prosperity of our country," he says, characterizing such charges against hedge fund managers as "nonsense." "My capital isn't the capital of the Rothschilds," he says, insisting that he is working with the "capital of the people," and that his goal is to protect and increase this capital. Taylor points out that no one from any of the German pension funds that invest their money with him has ever called him on the phone to tell him not to bet against the euro.

Don't blame him because politicians have to scramble to fix the problem! After all, it's only people's lives, fortunes and sacred honor involved!