The Other Financial Crisis – Project Syndicate


The author is far better qualified than I to comment on the matter but I do believe I have a worthwhile, if not ‘contribution’ then, comment or question. Money is no more than a promise based upon the assumption of future economic growth. Is the enabler of innovations (driven by new thinking, collaboration and technology) required to fuel that growth but is constantly being devalued as a result of the current economic climate, so is in short supply: how do we expect to achieve the required growth? Doesn’t that make ideas and innovation a more bankable currency than conventional money? My conclusion: This IS an ‘Innovation Economy’ where ideas are worth more than money but will be left to whither on the vine without it!

Proper access to credit for productive segments is an integral part of a well-functioning economy. Without it, growth falters, job creation is insufficient, and widening income and wealth inequality undermines the social fabric. That is why any comprehensive approach to restoring the advanced countries’ economic and financial vibrancy must target the proper revival of private credit flows.

http://www.project-syndicate.org/commentary/advanced-countries–private-credit-crunch-by-mohamed-a–el-erian

Paul Mason: Alien 2010 – will this toxic spillage burn through the Euro?


He always delivers value and this is no exception!

(c) Paul Mason 2010

In the original Alien movie (1979) there is a scene that illustrates the problem we’ve been facing since September 2008, and which is coming to a head now (I’ve produced a handy graphic opposite).

Somebody stabs the alien: but its blood is acid. It burns through the floor of one deck and one character realises: "that cr*p’s gonna burn through the hull!"

They run to the next floor, but it’s already burning through to the next deck. Finally it stops: the acidic properties neutralised through interaction with the metal decks, the air, the demands of Hollywood storytelling.In the global financial crisis the acid is toxic debt.

The first thing it hits is the real economy: output, trade and the stock markets, which tank in the last two months of 2008 at the same rate as during the post-1929 crash. The acid quickly burns through here.

via BBC – Newsnight: Paul Mason: Alien 2010: will this toxic spillage burn through the Euro?.

Standard & Poor’s update rating for Ireland


Following  agreement to the 85 billions Euro bailout, Ireland is still “A” rated. I sincerely hope that the Eurozone crisis has been permanently averted and have no wish to see their cost of borrowing increase BUT surely “C” is a more credible rating!?

Lehman Bros was “AAA” rated just before their collapse.

Still, at least S&P are working to improve things stay relevant.

S&P Rating strata: Read more of this post

Taleb: Government Deficits Could Be the Next ‘Black Swan’


When is a Black swan not a Black swan???

Image via Wikipedia

NNT tends to be worth listening to even if this conclusion wont surprise too many!

Interestingly our own, unique, Ontonix analysis measures the fragility of the structure of the individual economies of EU member states as well as of the “EU system”. The updated report for Q4 2009 is available for FREE DOWNLOAD on our website. Q1 2010 EU Structural Fragility Report. NOW AVAILABLE for €199.

I was, somewhat, startled when, at a recent meeting, one of the most “in demand” Global financial risk experts, in a very matter of fact manner, said that we are only months away from the first sovereign defaults within the Eurozone. Not one of the more obvious contenders. Perhaps less surprising, is that some US states will also default.

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Taleb has published a new version of his 2007 best seller The Black Swan. The second edition includes a new 73-page essay, “On Robustness and Fragility.” Businessweek.com interviewed Taleb in early July about his views on investing and the dangerous Black Swans—i.e. unpredictable events with big consequences—that could lie in wait for financial markets.

What are are potential sources of fragility or danger that you’re keeping an eye on?

The massive one is government deficits. As an analogy: You often have planes landing two hours late. In some cases, when you have volcanoes, you can land two or three weeks late. How often have you landed two hours early? Never. It’s the same with deficits. The errors tend to go one way rather than the other. When I wrote The Black Swan, I realized there was a huge bias in the way people estimate deficits and make forecasts. Typically things cost more, which is chronic. Governments that try to shoot for a surplus hardly ever reach it.

The problem is getting runaway. It’s becoming a pure Ponzi scheme. It’s very nonlinear: You need more and more debt just to stay where you are. And what broke [convicted financier Bernard] Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers.

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Please visit Econtalk to listen to the podcast &/or read some of the text and comments: Taleb on Black Swans, Fragility, and Mistakes

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Excerpts from Taleb’s lecture at Oxford
Too Big to Fail, Hidden Risks, and the Fallacy of Large Institutions

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