| Corzine and the Liquidity Trap Posted: 01 Nov 2011 10:41 PM PDT Smart Roger Lowenstein take on liquidity’s submerged risks: Time and again, otherwise canny investors fall for the salve that in a liquid market, they can always get out, therefore what's the problem? At Lehman, in the mid 2000s, executives took comfort in the notion that that the bank was in the "moving business" not the "storage business." Then, the mortgage market froze, and everyone was in the storage business. Liquidity is a backward-looking yardstick. If anything, it's an indicator of potential risk, because in "liquid" markets traders forego trying to determine an asset's underlying worth – - they trust, instead, on their supposed ability to exit. Investors now in low-yielding U.S. Treasury bonds may, one day, discover this lesson for themselves. It's hard to overestimate the extent to which the siren of liquidity has seduced even ordinary Americans. During the housing bubble, anyone who took out a mortgage they couldn't afford, upon advice they could always refinance, was tacitly assuming they could trade their old loan for a new one. They were counting on continued liquidity in the mortgage market–and so were the banks that lent them the money.
via Corzine Forgot Lessons of Long-Term Capital: Roger Lowenstein – Bloomberg. 
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| Fun with Pete Townshend Posted: 01 Nov 2011 07:44 PM PDT Pete Townshend riffs, verbally Let me introduce you briefly to my inner artist, then I will put him back in his box. I dont give a shit about making money. I think rock music is junk. I am a genius. The Who were OK but without me they would have all ended up working in the flower market, or worse – in Led Zeppelin. John Peel played some records that were so bad that I thought he was taking the piss sometimes. The BBC only gave us Pop Radio 1 in the 60s five years after the pirates had proved there was an audience for it. Sadly, unlike the pirates, they didnt accept payola. I really should put this inner artist guy back in his box yes? Have we got our newspaper headlines yet?
via Pete Townshend Accuses iTunes of Not Doing Enough For Musicians, Says Illegal Downloaders Might As Well Steal His Sons Bike While Theyre At It | The Measure. 
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| Europe’s “Momentary Union” Posted: 01 Nov 2011 05:11 PM PDT |
| The Creditor/Debtor Game Posted: 01 Nov 2011 04:36 PM PDT Good piece tonight by Martin Wolf in the FT: The country with the credit sets the rules. Debtors have to beg, particularly in a fixed currency arrangement, whenever finance is needed to cushion an adjustment imposed via deflation. Creditors can also insist on their interpretation of the causes of a crisis. Germany states that it is all the fault of bad fiscal policies: correct those and bind fiscal policy for all time; the virtuous will then inherit the earth. This view of the world suffers from three drawbacks: it is wrong; it is self-defeating; and it is destabilising. It is wrong because far from all crisis-hit countries suffered from irresponsible fiscal policies. In important cases, they suffered far more from irresponsible private lending and borrowing. It is self-defeating, because attempts by every member country to tighten fiscal policy at once will impoverish all, including creditors. The view is also destabilising, because the way out of this trap would be via a shift of the eurozone into external surplus. Resolving the internal imbalances by worsening global ones is a bad idea.
via InfoViewer: Creditors can huff but they need debtors. 
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