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Signal to noise ratio

Some worthwhile thoughts on the European bail-out. Well done, violent protestors!

1. The fundamental cause of the financial crisis has been people and institutions thinking they are more wealthy than they are; this spread to Europe as well and now we are seeing the comeuppance.

3. The major European powers would not have come up with a nearly $1 trillion bailout, also involving de facto loss of ECB independence, unless they were scared ****less.

4. They are trying to do a version of TARP-in-advance-of-the-panic and in my view that panic would have come today.

9. This doesn't solve any of the basic fiscal problems, so ultimately it raises the stakes and creates a chance of even greater financial failure.  Simon Johnson comments.

Read the whole thing. Obviously I don’t have access to news about the finanical system other than what is publicly available, so I have to wonder how the basic market signals about debt and borrowers were misread by so many, for so long. It seems like the system is so full of noise (bad data) that assessing the true value of anything is impossible. Good luck to those who make their living placing bets.

(From “Simple thoughts on Europe“, via Marginal Revolution.)

May 11, 2010   Comments Off

Greece and the Euro

From Megan McArdle, links to a couple of articles on the sovereign debt crisis, and how it all played out last time around. It’s worthwhile to read as many of these as you can stomach—the Yves Smith article is especially good.

The Great Depression was composed of two separate panics. As you can see from contemporary accounts–and I highly recommend that anyone who is interested in the Great Depression read the archives of that blog along with Benjamin Roth’s diary of the Great Depression–in 1930 people thought they’d seen the worst of things.

I’ve felt since the stock market started to rebound in the middle of last year that we were just passing through the eye of the storm. If I were a more active investor I might have taken some medium-to-long term short positions on… everything.

(From “Greece and the Euro: Going, Going . . . “, via Instapundit.)

April 29, 2010   Comments Off