is what I read in the newspapers for some time. Sarkozy said that the need to control speculators who are breaking down the euro. The Greek finance minister says that those who speculate against Greece will bite the dust. And then goes on.
Speculation against the euro by selling it, which lowers the price of the currency. Speculation against Greece is asking a very high risk premium on government bonds (a bond of maturity 2 years Greece has an efficiency of 10-15% depending on the day ... in Canada, we're talking about 1.5 -2%).
But is that speculators are responsible? How? Why? Who? When? As questions, so few answers ...
- Is there any speculation on the euro and the Greek bonds? Answer: yes
- Are these speculators are now so important that they are partly responsible for the current declines? Answer: yes
- Does the presence of these speculators would affect the soundness of financial markets? Answer: No
- Are these speculators are responsible for the problems of contagion views on the markets? Answer: yes and no
Why say no to the third question? Because say yes is to say that markets are not efficient and ineffective. If the speculators have done too much lower prices, they rise in the short term (days or weeks) to achieve a balance. Speculators are therefore responsible for having unnecessarily increase volatility. If prices remain stable, while speculators have allowed markets to reach the new equilibrium price quickly, which is excellent.
Why this ambiguity in the answer to question 4? Because speculators are indeed responsible for having pointed out the country likely future problems. In fact, having seen that Greece was also in the hole, the European financial actors (That the world now call speculators) have searched the public finances of all countries in the euro area. Results: The acronym that presents the country with a debt "problem" goes the PIGS (for Portugal, Italy, Greece, Spain) in recent years STUPID (Spain, Turkey, UK, Portugal, Italy, Dubai). "Speculators" have indeed these names hammered in the markets and beginning to demand a risk premium higher in these countries (causing the phenomenon of contagion), but they are not responsible for the underlying problem.
An analogy to understand
I'm surrounded in my life everyday people who know nothing about finance and I have often find situations easier to explain any economic phenomenon. So here is my analogy of the crisis euro.
Take a big family. The father, mother and their children share a joint account. They also each have a personal bank account. Grandparents and other members have their own bank accounts, but does not participate in the joint account.
For those who have not seen ... family = European Union, parents + children = countries with the euro as its currency, other countries with own currency = (UK, Switzerland ...)
All goes well for the whole family. Together, they bought a house that everyone must pay according to their capabilities. Everyone can achieve the spending he wants, but the owners of the account-husband have adopted strict rules to avoid causing harm to other owners of the account partner. The house
= European Union, rules = rules to maintain maximum leverage single currency
But, one child wanted to live above the means despite the strict rules. It therefore pays significant care and returned to school for years. It takes advantage for travel (business class) in beautiful destinations (after 5-star hotels). One point, finding himself soon dry even to pay the minimum on his credit card, call a family meeting at the bank to say that in 5-10 weeks there will be more a cent. He wants help.
The child is irresponsible Greece. Expenditures represent the luxury of having lived beyond these means. The meeting at the bank is having said aloud "In late May, I go bankrupt if the EU does not help me. "
The whole family quick to lend money to the child to prevent it taints the joint account. Also avoid the loss of the house and save the family reputation. Bankers income of the family then decided to scrutinize the finances of each member and discovered that two other children are borderline, but not necessarily critical. Parents call an emergency meeting to create an emergency fund to protect the spouse account. The grandfather refuses to participate in this fund.
The other two children are Portugal and Spain . The grandfather is the UK refuses to participate in an emergency fund to stabilize the euro area in case of future problems.
Bankers reassess income family where the whole family. Because all children (including irresponsible) have access to the account-spouse, banks lower the credit rating of the joint account. With regard to personal accounts, they are reviewed on a case by case and those irresponsible children have seen the interest rates on future borrowings increase.
Need I explain?
So ... would you want to bankers in the case of my analogy of doing so? It preventive some say, but said higher risk said performance required higher. Notice that they did not categorically refused to swear or demanded immediate payment of all scales ... just required risk premiums higher.
If you answered yes to my question, do you think the banks have done well in the United States to lend money to people who wanted to buy a home without passing the tests of creditworthiness (hence of making subprime) on terms as favorable as regular mortgages? If your answer to my last 2 questions is not the same, you are incoherent. (Normally, I expect no-no ... say yes-yes it does not understand the workings of finance)
In my analogy, some bankers may speculate on the difficulties of their customers (through higher interest rates, but long term the situation must necessarily reach equilibrium). And can we say that the crisis in the family is the fault of bankers? So why say that speculators are responsible for the crisis euro?
0 comments:
Post a Comment