Jim Surowiecki today looks at the flipside of the moral hazard trade: if you can’t count on governments to bail you out in extremis, then you’re likely to have volatile and unpredictable markets.
Is everybody overstating the consequences of a Greek default and/or devaluation? The Economist points out that Europe has seen quite a few defaults in recent decades (Russia, Poland) and also break-ups of currency unions (Czechoslovakia, Yugoslavia) — and that none of these events caused a lot of lasting damage.
It’s going to be another panicky weekend in Europe after today’s torrid market action: the positive effects of last weekend’s emergency meetings clearly didn’t last even until Friday, and the ever-weakening euro is now dragging down the continent’s bourses. This isn’t (just) a sovereign-credit issue any more: the financial markets have worked out that there’s a pretty simple trade-off between fiscal austerity and economic growth.
The civil and criminal investigations of Evil Financial Products Which Destroyed The World have now officially reached the stage of farce, with “federal regulators and state officials” reportedly investigating the fact that banks traded municipal CDS at the same time as underwriting municipal bonds.
Justin Gillis has a great story about how no one with the ability to do anything about it seems remotely interested in measuring the severity of the oil spill in the Gulf of Mexico. The ubiquitous 5,000-barrels-a-day number seems to be a massive underestimate, and the stated reason for not getting a better figure is weak indeed: