Freitag, August 12, 2011

Bumpy Ride, Oh My...

We're in for a bumpy ride.

As long as governments continue to do things half-way, the longer it's going to take to run the speculators down into the ground.

A speculative bubble bursts when it becomes apparent that the only way to make money in the bubble is to have already left it. If you're still in it, you're screwed.

While I dislike the man intently, George Soros had something intelligent to say today in the Handelsblatt. I'm not going to link, but the gist of the story was that the core countries of the EMU will probably have to lose their AAA rating in order to save the periphery: the leverage that these countries will have to take on in order to bail out the welfare systems and failed government finances of many European countries - if not most - will mean, much like the US, that their pristine ratings are in jeopardy.

Which they are because of the political decision to support those countries come hell or high water, or both.

Now, speculators have a place in the world of finance. They are the ones who are willing to take great risks for great rewards.

Today, speculators who are desperately scrambling to get any sort of return of the kind that was barely adequate yesteryear are chasing mirages of high returns that are, under sober circumstances, more than outweighed by the risks involved: even the high-risk, high-return platitude of the past is under question. What we are seeing is the destructive phase of Schumpeter's creative destruction, a frenzy of self-destructive and Pyrrhic victories that is eating away at the soul of modern finance.

This is not an end game, the End of Days. It is, however, a major crisis, one that will see landscapes consumed by fire and floods, with "too big to fail" failing. It is a crisis of confidence, it is a crisis of fidelity, it is a crisis of trust. Wide-spread fraud, aided and abetted by politicians and by those who were charged with keeping an eye on things, must come out and be thoroughly cleansed from the system before trust can be established again.

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