So Europe sets up an oversight committee called the ESRB to make recommendations and assess the financial markets in order to prevent the next financial crisis. What a brilliant idea! It’s a shame nobody ever came up with that idea before.
Too bad though, as the ESRB, like most bureaucratic self-congratulating committees will probably do nothing to stop whatever it is it was created to prevent.
The European Systemic Risk Board, which aims to identify and warn of brewing risks in the financial system, may fail to prevent future imbalances as it doesn’t have any legal power to enforce action, according to economists at ING Group,Barclays Capital and ABN Amro. […]
“The problem is that these bodies are set up to solve yesterday’s problems,” said Peter Hahn, a former Citigroup Inc. banker who lectures on finance at Cass Business School in London. “They can never do more than flagging any issues,” and whether they can stop a crisis “is questionable.”
The European Union is trying to avoid a repeat of the financial crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc. and resulted in European governments setting aside more than $5 trillion to support banks. Part of a wider regulatory overhaul, the ESRB is similar to the Financial Stability Oversight Council in the U.S.
The piece is talking about financial markets, but you can substitute any other issue–healthcare reform, the housing market, whatever. The point is that politicians and bureaucrats will always make themselves seem more important than they really are. They do that by forming “committees” to oversee this or that emergency to make it appear as if they’re on the case and working to protect you–the citizen. Meanwhile, they do it only to justify their political existence.
Like the article suggests, more likely than not, their actions will do little if anything to prevent said problems. In fact, they can make it worse. So remember that the next time politicians (Republican or Democrat) tell us not to worry, that they’re on top of things and forming committees and whatnot.
Markets are down big all over the world and Wall Street opened sharply lower.
Worries about Europe’s sovereign debt crisis are the backdrop for all of this, precipitated earlier this week by Germany’s decision to place a ban on all naked short selling, in an attempt to stop the bleeding. The fools.
The market overlords are scratching their heads, wondering why their magic pixie dust isn’t working. If you want to attempt to understand why markets are crumbling, look at idiocy like this:
Asian stocks tumbled, with the Nikkei at a three-month low, amid worries there about the European debt crisis, market regulation and growth in China. Plus, riots in Thailand that saw 30 buildings torched including the stock exchange, a massive shopping mall and a TV station, added a layer of unease to the region.
“I’m convinced the markets are really out of control,” said German Finance Minister Wolfgang Schaeuble. ” That is why we need really effective regulation, in the sense of creating a properly functioning market mechanism.”
[…]The German government faces a stormy debate in parliament this week over its participation in the €750bn stabilisation plan for the eurozone and the move on a transaction tax could persuade the opposition Social Democrats to support it.
Berlin has promised to give credit guarantees up to €150bn as part of the stabilisation package, if weaker eurozone economies come under renewed pressure in the capital markets. The finance minister rejected domestic criticism of the rescue, saying it was essential to preserve the stability of the euro.
He expressed disappointment at the market reaction. “We would rather see the markets react a bit more positively,” he said. “But when the euro was launched, its exchange rate to the US dollar was lower. So we’re not getting too worked up about it.”
Got that? It’s the MARKETS that are the cause of the problem. Those silly markets, refusing to abide by the temporary bandaids bailouts and other lame measures that Europe’s central bankers have put in place to try and stop the sell-off.
Of course, they want to use the volatility to take more control, implement more regulation on the markets.
Such hubris and arrogance. The “markets” are not acting “out of control”. The markets are RE-acting to the ineptitude and ignorance of central bankers and European leaders! The out-of-control spending, the deficits, all of it unsustainable. The markets (investors) realize this and are acting accordingly. There’s a big difference.
This Robert Samuelson column is a must-read:
What we’re seeing in Greece is the death spiral of the welfare state. This isn’t Greece’s problem alone, and that’s why its crisis has rattled global stock markets and threatens economic recovery.
Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven’t fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.
Americans dislike the term “welfare state” and substitute the bland word “entitlements.” The vocabulary doesn’t alter the reality. Countries cannot overspend and overborrow forever. By delaying hard decisions about spending and taxes, governments maneuver themselves into a cul de sac.
If only a few countries faced these problems, the solution would be easy. Unlucky countries would trim budgets and resume growth by exporting to healthier nations.
But developed countries represent about half the world economy; most have overcommitted welfare states. They might defuse the dangers by gradually trimming future benefits in a way that reassured financial markets.
In practice, they haven’t done that; indeed, President Obama’s health program expands benefits. What happens if all these countries are thrust into Greece’s situation? One answer — another worldwide economic collapse — explains why dawdling is so risky.
Samuelson needs to be careful. He might be tarred and feathered as a racist teabagger because what he’s talking about goes up against the entire foundation of the left-wing power base in Washington right now. Democrats’ (and, to be fair some Republicans) solution to every crisis and problem is spending more money and expanding the bureaucratic beast that is the Federal government. All of it financed on the backs of an increasingly smaller group of American taxpayers. That’s not a recipe for long-term growth or solvency.
Stocks reached levels they haven’t seen since…last week.
The markets saw some serious volatility towards the end of last week and that continued as the market surged today. But plugging the holes via a massive liquidity intervention is not exactly a sure thing:
Just hours after leaders agreed to provide nearly $1 trillion as part of a huge rescue package, central banks began buying euro zone government bonds directly on Monday — an unprecedented move to inject cash into the financial system.
In response, the euro has rallied against the dollar, markets surged and the risk premium on Greek and other government bonds plunged. But analysts pointed out that the package did little to reduce overall debt, and that the uncertainty that has plagued the markets could return if European nations did not take bold steps to reduce their borrowing.
“If the will for fiscal discipline in the E.U. is plainly evident, long-term confidence in the euro will be restored,” Michael Heise, chief economist of the German insurer Allianz, said in a note to investors.
The Euro seemed to hit bottom last week at $1.25, and surged to $1.31 early this morning on the bailout news. But that didn’t last long as the Euro was last trading at $1.277 vs the US dollar.
So much for confidence in the Euro.