Governments think it’s time to blame the speculators again. You may remember the speculators and share shorters who dared to sell bank shares during the monetary and regulatory collapse of 2008. They were the cause of that crisis according to some official sources. Governments recommended at the time stopping people selling bank shares short, as if that were going to resolve the collapse of banks, brought low by bad banking and by excessively easy credit and banking regulation.
Today Greek and Spanish officials are briefing that bond speculators are bringing down their government debt for no good reason. Apparently investors and markets should go on lending as much as these worthy Ministers and officials want to borrow, so their salaries can be paid regardless of the financial plight of their countries.
Socialist morality is difficult to grasp. Apparently poor Chinese, who live on incomes far below those of Greek or Spanish officials, should have to lend to Greece and Spain so those same officials can carry on enjoying their high salaries. Those officials will then buy Chinese goods at cheap prices with the Chinese money their state has borrowed, so the Chinese can carry on working in the fridge or tv factory. The Chinese workers may not themselves be able to afford the tvs and fridges which they make, but collectively they should lend rich countries the money so westerners can.
These officials should stop wallowing in self pity and self justification. Countries like Greece, Spain and the UK have been borrowing too much. The Chinese and others do not have to go on lending to them. It is time for them to sober up and get a grip on their excessive deficits. Speculators helped save the UK from the political madness of the Exchange Rate Mechanism, forced upon us by all three main political parties. Speculators may well speed up the obvious necessity to limit debt. If they do so future generations should be grateful. Allowing these present governments to carry on borrowing is as kind as allowing the alcoholic with a weak liver to carry on drinking alcohol.
PS: There is a bit a fight back going in the EU against the idea of Greek bail out. Axel Weber of the ECB has said of the Greek plan to slash the deficit ” Now actions have to follow words”. Official German governemnt spokesman Urich Wilhelm has put out on Reuters a rejection of “unfounded reports citing coalition sources saying a decision for aid for Greece has in effect been made”
The UK government should make it clear as a non Euro member we certainly won’t be signing a cheque for Greece with all the money we have borrowed and printed.
February 10, 2010
JR: "Governments think it’s time to blame the speculators again. "
Yes, excessive government borrowing, high inflation, and 'quantitative easing' makes it no longer worth while to invest. Speculation on where the next government subsidy/cash injection will manifest itself has become the norm.
Who it to blame for that? It's our old enemy, big government!
Speculators are just the symptom of the problem. The rash that implies the pox, the real debilitating disease is the excessive size of the state.
February 10, 2010
Two questions arise from the Greek collapse:
1. Today there is a general strike of Greek public sector workers. Watch out for this happening in the UK the moment serious public sector cuts are mooted. Once you have given the British public a specific "service" dynamite will be required to take it away.
2. What happens if the EU bails out Greece? Do we as UK/EU taxpayers have to foot part of the bill for this? It would be grossly unfair, given that we have stayed out of the Euro. I as a British taxpayer would be enraged at the idea that part of my income could be raided by the Government to subsidise profligate Club Med economies that declined to take the necessary measures need to stabilise their own currencies soley to appease public sector unions.
February 11, 2010
Part of your income, and indeed your savings, have been raided, but it was to subsidise profligate bankers, not Greeks. The devaluation of the pound, necessary to rescue the banks, has lessened the value of your income and your savings. That would not have happened if we had been in the euro.
To the extent that the Greek Treasury may hold UK bonds (I don't know if it does) the Greek taxpayers have subsidised us.
A difference between being in the euro or not is that different people pay for the profligacy of governments and bankers. In the euro those who borrowed money have to repay it; outside the euro those who saved are forced to pay, by having their savings devalued.
February 10, 2010
One thing is certain – this is all about Greece paying its Government workers. If the Greeks carry on as they are then Government workers will stop receiving their montly pay packets.
The Government Unions are strong in Greece and prone to rioting, but hunger will focus their minds. The Greek tax collection system is very poor, because business is very small and tourist based – so I don't think that then Greek situation is so bad IF they can collect taxes and scale back on Government spending.
The question is whether the EU will lend Greece the money – and will pay for the loans to Greece and what strings will be attached. It may well be that the UK indirectly pays for these loans.
We need to be clear that when the Greeks are lent their money that EU Bonds are issued and paid for by the Euro-zone countries and that the loan is made from the EU central bank AND NOT that a loan or any guarantees are made from the central EU piggy bank that we must pay towards.
February 10, 2010
Yes! Thank you!
February 10, 2010
Thank you for telling it like it is.
Shame that many other MPs cannot grasp the Problem.
On another topic.
I see the Telegraphs headlines this morning
Labour's "Secret Plan to lure immigrants"
Would appear that a draft Policy Document drawn up in 2000 has now come to life, (freedom of information request) which outlines the thinking process behind the mass immigration into this Country for the last 10 years
It would seem that it was thought that more immigrants would make us more multicultural.
It would seem that it was thought that most immigrants tend to vote Labour.
So we have had ten years of Social engineering by stealth taxes, tax credits and benefits for Political reasons.
Ten years of Social engineering by immigration for Political reasons.
One is forced to wonder what else was in the hidden Manifesto.
Power and greed corrupts.
Shameless.
February 10, 2010
I meant to add, this was in the FT the other day under the heading "Greece and the eurozone: Halcyon no more"
"…But the drama is much bigger that that – with shortcomings exposed on many fronts. Why was an obvious lack of accountability in Greece for its finances ignored for so long? Why was more not done earlier to put its economy – pumped up by EU aid but riddled with inefficiencies and corruption – on a sounder footing? Why was the contagion allowed to spread so rapidly to other countries – and could the eurozone find a better way of dealing with crises?"
February 10, 2010
“…But the drama is much bigger that that "
Yes, the drama is much bigger than that.
Greece represents something like 2% of the Eurozone GDP, they could easily be bailed out, even though that would set an unfortunate precident.
Spain, is much bigger at 15% and in a similar condition, just not getting the media focus.
Ireland, also in the Euro zone has something like 1000% of Irish GDP external debt obligations.
It looks to me as if the celtic tiger was a chimera after all.
Greece is being used as a distraction.
February 10, 2010
Newsnight last night had a charming, witty Spaniard and a smooth professor and Nobel Laureate with a beard representing Greece. Against them was THE MARKET played by a grinning mobster who was GREEDY. (Geddit?)
Now for the truth: Our banks, which we are underwriting, stand to lose a hundred billion pounds – yes, that's right billion – if the PIIGS go under. We, dear reader, are guaranteeing them.
When this government took office way back when the House of Lords was still hereditary, Comrades, and therefore corrupt, their total annual spend came to only four hundred billion.
Go figure!
February 10, 2010
I don't think that a EU bail-out of Greece will be appropriate: Greece is beyond a bailout. Bailouts need to be repaid and without draconian action, or perhaps even with it, Greece will not be able to repay, nor will it be able to service its existing debt at current interest rates.
They will almost certainly default, or perhaps some nice word that does the same thing, or at best some draconian rescheduling, moving the pain to the banking sector.
This will trigger an almighty dash for quality with the result that interest rates will shoot up for the doubtful, and more borrowing will become impossible for the basket cases.
We will not wait until next year for this to happen, it is waiting for us around the next corner. It was inevitable but too many people in government have been listening to the soothsayers who will continue to ask for calm until the last deckchair has sunk.
For those in the UK who have been so shabbily treated with near invisible interest rates on their hard earned savings,you are about to be rewarded in spades, although unfortunately it will only appear that way at first glance.
February 10, 2010
Politicians love to blame speculators because they are an easy target… but the fact is, without speculators, liquid markets would be very hard to come by.
February 10, 2010
@Simon D
I don't think we want to make too much of a fuss. an EU prepared to bailout struggling countries might be rather a good thing for the UK…
February 10, 2010
A couple of questions:
If the European Central bank props up Greece and it defaults, who will send in the administrators, and which bit of Greece will we "own"?
I had thought that a "greater Europe" dominated by Germany had been defeated in 1945
February 10, 2010
…and completely O/T but:
will you be able to shed any light on the discussions between George and the head of the FSA?
Did he jump, was he pushed? Did someone explain the writing on the wall, and show him the hands on the rug that was about to be pulled from under his feet? Will he walk away with a handsome severance payment?
February 10, 2010
Dear Sir John Redwoord
Excellent article in the Daily Telegraph this morning about a Robin Hood Tax on bank transactions written by a certain Bill Nighy. If an average global levy of 0.05% on bank transactions would raise £250 billion that would raise a lot of money for governments to repay debts incurred in bailing out the banking system. For Britain that figure would be about £20 billion given the proportion of the global finance industry based on Britain or trading with London. A 0.1% levy (hardly likely to drive City workers offshore) would raise £40 billion in Britain.
This is a huge opportunity to make banks pay for their excesses and also to help close Britain's massived Budget Deficit. Here is a way to pay off our debts without incurring the wrath of the electorate, and in future that money could be used to provide much-needed tax cuts for small businesses and improve Britains crumbling infrastructure. Idealogically, we Conservatives might be opposed in principle to such a levy against bank transactions but it makes excellent sense economically and electorally. Why not suggest it to Sir David Cameron (and get him to buck his ideas up) before Labour spot the potential ahead of us and we lose the election?? Make sure Sir David Cameron performs well at PMQs too!!
Ian Pennell
February 10, 2010
Dear Ian Pennell
Who would pay this tax if not the customers of the banks? Even if you supposedly got the banks to pay, they would need an offsetting increase in subsidy to repair their broken balance sheets.
February 10, 2010
So the 40bn you raise from UK banks would be taken from the investors who hold the bank shares. I.e. pension funds.
Pensions are already being emptied to subsidise cheap mortgages.
February 10, 2010
The problem is that it will not be the banks but their customers who pay this levy i.e. all of us. If something sounds too good to be true it is!
February 10, 2010
Great idea, let the borrowers pay this time rather than the savers
February 10, 2010
was this post paid for by the UN?
February 10, 2010
As I recall, in the run up to the euro launch we were told about the Stability Pact, by which Euro member states were to be kept in line as regards borrowing. I thought at the time that the stick to be used, a fine, was illogical in as much as if countries feel the necessity to borrow more than they should relieving them of some of the money they have was likely to make the problem worse rather than better.
I should not have concerned myself about the efficacy of the Stability Pact for as it has turned out there has never been the resolve to use it in any event!!!!!
February 10, 2010
When it is said that 'speculators' are a problem – remember that every single contract is voluntarily accepted by the buyer and the seller.
No one is being forced; every single trade is willingly undertaken by the buyer and the seller.
And these trades are apparently, we are told, are the problem, and the solution must therefore be for the State to intervene and to *force* people, against their will, to buy or sell, or not buy and not sell, with the money that is their private property, for the 'greater good', to 'save the economy'.
The fact is people are making these trades *because the State has pushed the economy into such a condition that is it sensible to do so*. The intervention that would occur is purely to cover up the errors of the State and to permit it to continue to act – for a little while longer, making the economy that much worse – as it has done; and the State, to achieve this continuation of tom-foolery, would have to grant to itself and exercise the power to utterly violate individual freedom and private property.
February 10, 2010
It seems very likely there will be a bail-out of Greece, it just won't be called that. There will be 'accelerations' of EU grants (which we do pay for, in the Euro or not) and possibly cross-guarantees on borrowings (which we should be able to avoid the costs of). There is too much concern at the potential impact on European banks of a Greek default for them to be left to sort themselves out.
February 10, 2010
…but John I thought that the Lisbon Treaty REQUIRED the UK to support the Greek economy & currency, even if we are not in the Eurozone.
Is this true?
Reply: No
February 10, 2010
Really?
Article 122 of the Lisbon Treaty
1. Without prejudice to any other procedures provided for in the Treaties, the Council, on a proposal from the Commission, may decide, in a spirit of solidarity between Member States,
upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products, notably in the area of energy.
2. Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken
Surely that is exactly what clause two of article 122 means?
February 10, 2010
Indeed, when Douglas Carswell asked the PM that very question today, he did not simply rule out financial assistance which would have been the easy answer, he just went into evasive mode (not unique I grant you!) which rather makes me suspicious.
Reply: Yes, he was evasive but he did not say the UK would be part of any Euro rescue – merely part of G20 country rescues.
February 10, 2010
Maastricht Treaty, Article 103(a)2
1. Without prejudice to any other procedures provided for in this Treaty, the Council may, acting unanimously on a proposal from the Commission, decide upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products.
2. Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by exceptional occurrences beyond its control, the Council may, acting unanimously on a proposal from the Commission, grant, under certain conditions, Community financial assistance to the Member State concerned. Where the severe difficulties are caused by natural disasters, the Council shall act by qualified majority. The President of the Council shall inform the European Parliament of the decision taken.
Don't know if that has been modified by Lisbon. But notice the decisions to assist a member state are taken not by the individual member states but by the commission.
February 10, 2010
Oops! I see the Maastricht provisions are now incorporated into the Lisbon Treaty.
February 10, 2010
Do you really believe this Mr Redwood? If the Greeks are bailed out, we will be paying some of the bill – in the Eurozone or not. Depend on it.
February 10, 2010
Article 122
February 10, 2010
I do think Greece will get a bail out. Their specific problem is short term bonds, over spending, corruption and poor tax collection. I think short term loans from the EU will see them through the next quarter – but the crunch will come in the longer term if they can't improve their tax collection and reduce their spending.
They are alot like Northern Rock – going to the markets ALL the time to borrow money to pay for their spending. I can't see that as acceptable to the EU.
The EU may have lost its chance to become a reserve currency if it can't remove this problem of short term renewal of debt, over spending, corrption and poor tax collection, by some of its members. That is a major strategic loss to Europe. Rather than strengthen Europe – the EU appears to be weakening it in this respect.
February 10, 2010
I'd like to make a small 'speculation' with you that you don't get to say all that on the BBC. What odds are you offering?
February 10, 2010
So will our help to Greece be "spun" as an investment both in the future vibrant Greek economy and in the future of a United Europe? Surely this is an even better and more worthy investment opportunity than our own good Public Sector? It has to be worth printing a few more billion Sterling for, surely?
February 10, 2010
When Greece goes bust can we have the Cyclades please.
February 10, 2010
Brown refused to answer the Greek question which means he will ride in on his Scottish Manse Charger and throw more of our money (which we do not have!) at it as part of his Global Rescue Mission.
Notice your question at PMQ's was not answered either although Brown did suggest we are better off not following your ideas. Can Brown read? and if he can, is he a sentient being?
Time I think for Conservative MP's to ask no questions at all at PMQ's thus thwarting the Brown rant campaign.
February 10, 2010
I think this government should be very careful about what it says, as we are in a very similar condition except that we do have the advantage that we can devalue.
I don't think we should worry if the Public Services do go on strike, at least they won't riot as in Greece, most are too idle. And it might allow the public to discover exactly which public services are essential and get rid of the rest I wonder if the Quangos will join in?
February 10, 2010
Glad you asked the Govt why we have such high inflation. Mr King nailed his colours to the mast today saying inflation will not rise above 3.3% and will fall to 0.9% by the end of the year.
If he misses and the Tories get in, make sure he is fired.
February 10, 2010
Why hold the poor chap to account on this when he has so miserably failed to forcast anything that he does not actually have advance notice of.
This is the very same man who, in 2007 said the liquidity crisis would be all over by christmas.
Should have been fired ages ago to salvage what little bit of academic economic reputation he had.
February 10, 2010
Sadly if money is going to be given to Greece it will be our money. Gordon answered that when asked in parliament today, by saying we will honour our commitments.
I did not know that nation states outside the Monetary Union project had made commitments, but you know, Gordon signs whatever they put before him unread.
How on earth his wife copes with that we might never know, but double glazing salesmen will love him in his after PM life.
February 10, 2010
Liberal conspiracy is a leading liberal blog.
they are covering this Greece story by blaming speculators.
http://liberalconspiracy.org/2010/02/10/greek-fin…
you can leave comments there to try and inform their readers of the reality and clear up the obfuscation.
mine is comment no.9
February 10, 2010
Please do not let Gordon Brown visit Spain or Greece until May 6th at very earliest. He just cannot set foot on any foreign soil without pledging millions more that we don't have
February 10, 2010
David Cameron doesn't seem to find "socialist morality difficult to grasp". Not in the least.
February 10, 2010
"The UK government should make it clear as a non Euro member we certainly won’t be signing a cheque for Greece"
The UK government should have made clear that it had promised the public a referendum on the constitution, but somehow, as always, the Borg required them to do the dishonourable thing, and the prostitute / prime minister went along with it.
I'd like to think this problem will be resolved following the dismissal of one of the most incompetent prime ministers in the history of the office. But I fear that Cameron, in an effort to prove that he's a good European even if he does seek a repatriation of powers, will readily agree when the (EU -ed) present him with their demands.
I don't know what it is about the (EU ed), but they clearly exercise a tremendous power over our government ………ministers. Our politicians slag off the EU with venom, but as soon as the (EU ed) require anything of them, be Tories in Maastricht or Labour in Lisbon, they reply, "With pleasure, dearie, and what position would you like me in when I give it to you."
Thinking about, I'm denigrating protitutes — they at least make sure they get something decent in return.
And although I would like to believe in Cameron (really, I would) endless policy U turns, a speech detailing his "plans for the future" which really is just an airey-fairy wish list, and, of course, his statement that "we don't want a bust-up with Europe" doesn't fill me with confidence.
February 10, 2010
'speculators function is to take the slack out of markets'. They will buy or sell when no-one else is.
Very uselful function, wouldn't you say.
And of course hugely risky.
So they get well paid.
And the problem with that is……………….?
February 10, 2010
When Greece joined the EU the financial statements it supplied were pure fiction. Their chickens are coming home to roost.
If the Euro zone decides to bail them out will they have the political foresight to force a settlement of the Cyprus farce on the Greeks?
February 11, 2010
The thing is, everybody knew it was fiction, and the Italians', and the Spaniards' — it was no secret, but the powers behind the Euro wanted a many nations to join as possible. Nor did they want to acknowledge any possibility of the Euro failing, so no effective means was developed to prevent the P.I.G.S. (Portugal, Ireland, Greece, Spain) behaving like alcoholics with a credit card.
And now the begging bowl will be passed around, with Britain — despite not being a memebr of the Euro — expected to cough up a good portion just to show what a good European it is. Gordon Clown will probably agree, if only to make life more difficult for his replacement.
February 11, 2010
What's in it for the Germans? Many might have been looking forward to a cheaper holiday this year, if Greece reinvents the drachma and devalues. Instead, they're expected to shell out to keep some bureaucrats and tax evaders in the manner to which they have become accustomed.
If I was a German taxpayer, I would be mad as hell. But I'm not, and am awaiting with interest the abolition of moral hazard in the Euro zone.
Speculators will love this one. The EU is just about to offer a sure bet!
February 11, 2010
Timeo Danaos debita ferentes.
Brussels wants to mastermind the bailout. van Rompuy and Barroso have been champing at the bit, claiming they have rights of direct rule under Lisbon according to reports from Ambrose Evans Pritchard. The Greeks have been revolting or striking depending on your point of view and opinion of them – some of them directly castigating the EU and the Greek government supposedly taking orders from Brussels.
A silver lining is that maybe we won't be supplying funds under a G20 bailout if the EU insists on not letting others like the IMF get involved. A second silver lining is that the EU is being shown up for what it is: incapable of enforcing its stability pact budget rules in any way other than attempting direct rule. If they think they're going to attempt that across all the PIGlets they might be in for a rude awakening. The Euro project now seems a step too far too soon.
In the mean time, the Germans and ECB have been told "Your mission, should you decide to accept it, is to bail out the EU: the Secretary will disavow any knowledge of your actions. Otherwise, the EU will self destruct in five years."
The only thing is a re-write of this tragi-comedy will be playing at a cinema near you soon enough.
I note Mervyn King has called CML's bluff and told them they must repay the special liquidity facility on time. That's £300bn of mortgage sweat. Still, as expected he is admitting QE may restart. Trying to be a net seller of gilts in a market running the risk of a chain of sovereign default can't be the easiest job in the world. Rolling over in excess of £50bn of treasury bills every few months must also start looking dangerous – the amount has more than doubled since the bubble burst.
February 11, 2010
Having been away did we miss something as one of us read that JR is now advising DC on policy?
Jolly good move at long last if so but is this a new 'appointment' John?
Reply: No new appointment. Mr Letwin is Mr Cameron's policy adviser. I give Mr C and Mr O my thoughts on the economy from time to time in my capacity as Chairman of the Economic Policy review.
February 11, 2010
[…] John Redwood MP » Speculators and socialist morality […]
February 11, 2010
Socialists don't have any morality. They are misanthropes, liars and wasters.
There is not one decent, honest person in the Labour Party.
February 11, 2010
Frank Field?
February 11, 2010
Lola
Agreed, his blog makes interesting reading.
February 12, 2010
It's funny how politicians hate speculators and hedge funds even though without them the bad lending practices at our now-state-owned banks would have gone on for longer, possibly much longer, with even worse consequences.