James Saft

By James Saft

(Reuters) – Received wisdom on Europe’s electoral results is that the throw-the-bums-out events in France and Greece represent a vote against austerity.

Here’s another possibility: it is an anti-reality vote.

That’s not to say that policies of austerity are helpful; they are not, especially when they are, as in the euro zone, taken as a futile means to support unsustainable debts in the financial system.

Rather, the elections illustrate a truth which will vex whatever policies are enacted next in all of the economies which are struggling with high amounts of total debt, be it corporate, banking, government or household. No one, no electorate, reacts well to the policies put in place during times when living standards are grinding slowly lower. Voters, just like investors, endow the things they can control, like who is in office and what they are doing, with far more power and ability to turn the course of events than they probably possess.

France voted in Socialist Francois Hollande over the weekend, opting for his ‘pro-growth’ stance over Nicolas Sarkozy. In Greece all of the parties which supported the current bailout, which features a program of deep austerity for Greece, were soundly thrashed, and the electorate made its will known by voting in such a way as to make any kind of coalition difficult to form and even harder to sustain.

The latest U.S. polls provide further evidence of the difficulty of governing in tough times; no sooner do the Republicans stop making a spectacle of themselves in primaries and the polls for the presidential election tighten to a dead heat. While President Obama is not advocating the kind of austerity now getting the thumbs down in Europe, he is presiding over an economy which is, as economies do when they carry too much debt, failing to thrive and to create jobs.

By James Saft

(Reuters) – As Chesapeake Energy Corp shows, fat executive compensation all too often comes twinned with lousy investor returns.

Shares of Chesapeake have tumbled in the last two weeks after revelations by Reuters of unusual and disturbing pay and other arrangements between the company and its CEO and founder Aubrey McClendon. McClendon borrowed up to $1.1 billion to fund private investments he was allowed to make in company oil and gas wells under its “Founder Well Participation Program,” a hilarious euphemism if ever there was one.

He also was, at least from 2004 to 2008, actively helping to manage a $200 million hedge fund that speculated in commodities his company produced.

By James Saft

(Reuters) – Pity poor Britain: their own currency to depreciate, their own central bank to print and buy government debt, and yet here we have the second recession in three years.

Not only did GDP shrink by 0.2 percent in the first quarter – the second consecutive contraction, but a sickly manufacturing survey and a drop in exports both indicate that there is a risk of something more sustained and deeper.

And it’s not as if labor hasn’t been sharing the burden; unemployment is high and wage earners are taking home less in inflation-adjusted terms than they were in 2005. That leaves many British households struggling with debts which haven’t really shrunk and must be repaid while earning, effectively, less. Inflation is high, leaving even less for consumption, and households continue to show a preference for paying back money rather than borrowing.

By James Saft

(Reuters) – Europe looks to be entering a credit crunch, with loans harder to get and those that are made coming on tougher terms.

Strikingly, banks are being tight despite falling demand for credit, pointing to a nasty interaction between the economy, its banking system and the choices of wary and indebted households and companies.

That this is all happening despite the massive efforts of the European Central Bank, which twice recently has made extraordinary amounts of nearly free money available to the banks, tells the grimmest tale of all.