Finance & the Economy

What follows farce?

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0
28 March 2012
george-osborne-bullingdon

At this week’s UK Treas­ury Select Com­mit­tee hear­ing on the Budget of 2012, attendees were invited to draw par­al­lels between George Osborne’s view of eco­nom­ics and the mil­it­ary stratagems of Field Mar­shall Haig. It seems that the Brit­ish Chan­cel­lor of the Exchequer has fol­lowed Haig in believ­ing that the best way to con­found one’s enemies is to do what any rational being would least expect: to make the same mis­take again and again, stub­bornly and without recourse to compassion. The moment of par­tic­u­larly acute pinch­ing of one’s nasal bridge came when Osborne set forth his ideas for boost­ing lend­ing to small busi­nesses; a mat­ter on which his much trum­peted Pro­ject Mer­lin has miser­ably failed its aims. Osborne’s ingeni­ous solu­tion was ...
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The Muppet Show

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0
15 March 2012
A Goldman Sachs client (apparently)

Greg Smith's resignation letter in the New York Times yesterday, announcing a bridge-burning departure from his position as Executive Director of Goldman Sachs' Equity Derivatives Division (Europe, Asia, Africa) certainly brought Wall St. to a relative halt. GS cancelled conference calls and the Goldman Flacks (PR goons) were rounded up to pour scorn on Mr. Smiths allegations as "unrecognisable". The importance of the letter was not so much it's revelation of a eat-what-you-kill culture in which clients are the main course, not even the contention that somehow GS had changed culture - it hadn't any more than any other investment bank since the Big Bang. The letter was important because it effectively took GS clients' faces and slammed them against ...
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The Abaclat legacy: Investment Arbitration as an Obstacle to Greek Recovery

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7
27 February 2012
A Bank of Greece sign outside the institution.

The agreement reached between the Eurogroup and the Greek government in the night between last February 20th and 21st has been considered by the former as 'a comprehensive blueprint for putting the public finances and the economy of Greece on a sustainable footing and hence for safeguarding financial stability in Greece and in the Euro area as a whole'. Unfortunately, the recent Abaclat award (2011), that affirmed the jurisdiction of an ad hoc panel of the World Bank’s arbitration arm the International Centre for the Settlement of Investment Disputes (“ICSID”) over a claim filed by over 160,000 Italian bondholders against Argentina for breach of the Italy-Argentina Bilateral Investment Treaty (“BIT”), might represent an obstacle toward the achievement of the goals ...
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Occupy: a brief note on three antique responses to debt crisis

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3
9 January 2012
Secessio_plebis

It is worth remark­ing that three broad types of response to debt crisis could be found in antiquity, in the Mediterranean-​Mesopotamian area. We say broad types because it is quite pos­sible that the par­tic­u­lar type remarked upon was rather the pre­dom­in­ant or defin­ing char­ac­ter­istic of a move­ment, and could be accom­pan­ied by the other types of action.1 We limit ourselves to this geo­graph­ical region for brev­ity, though sim­ilar responses could be found for example across China (espe­cially mass defection). The three types are broadly: 1) The throw­ing off of burdens 2) Exodus 3) Occu­pa­tion. As an example of the first, in Athens in 594 BC we find that Solon’s reforms amoun­ted to an effect­ive strip­ping of the ‘well-​born’ (eupat­ridae) of ...
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The Irish Crisis: This budget is about political choices based on priorities of class

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0
8 December 2011
Ireland's Finance Minister

As we are forced to look at the budget over two days, a par­tic­u­lar unne­ces­sary cruelty, it’s worth emphas­ising, as those in the ULA and Sinn Féin have done, that this is a budget based on polit­ical choices. It is depress­ing to watch seasoned polit­ic­ans like Pat Rab­bitte claim pathet­ic­ally that if they didn’t make the choices that they made that the EU/​IMF would pun­ish us severly. Last night on RTE’s Front­line Rab­bitte claimed that if Ire­land did not do what France and Ger­many wanted that they would forced to it any­way, cit­ing the treat­ment of George Papandreou, the former PASOK Greek prime min­is­ter as evid­ence. Mary Lou McDon­ald then made the point that Sinn Féin met the Troika and ‘set ...
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The Irish Crisis: We, the People, are too big to fail

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0
8 December 2011
NO

The Bal­ly­hea Bond­holder Bail­out Protest, now in its 40th week and joined with Charleville (their 25th week) is about one issue, and one issue only – the trans­fer­ence of private debt to the pub­lic purse. In one word, and very pure, very simple, it’s wrong. His­tory On a fate­ful week­end in Septem­ber 2008 Taoiseach Brian Cowen and Fin­ance Min­is­ter Brian Leni­han were called to a crisis meet­ing with Ireland’s bank­ing elite and fed with false/​incomplete inform­a­tion (take your pick); they declared a blanket Bank Guar­an­tee, three words that will haunt us for gen­er­a­tions, three words that will define the his­tory of this whole debacle. The fear they were force-​fed was that if drastic meas­ures weren’t taken that week­end there would be a run on depos­its in ...
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Good Morning AA+merica

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0
6 August 2011
Phileas Fogg burns everything

Some quick thoughts on Stand­ard & Poors’ down­grad­ing of the U.S.‘s credit rat­ing from the pre­vi­ously bullet-​proof AAA to AA+. We can moan about S&P’s mis­cal­cu­la­tion that led to a US$2tn error, and rigtly note with Paul Krug­man1 that S&P may well be the least qual­i­fied assessor of fin­an­cial health after the sub-​prime debacle, but the fact remains: the U.S. has been down­graded. And that means real legal effects. Large swathes of struc­tured fin­ance and secur­it­ies deals rely on the the ‘big 3′ credit rat­ings agen­cies to assess the credit risk of assets held by banks and spe­cial pur­pose vehicles. These rat­ings are used to tranche up the risk­i­ness of the assets and assign appro­pri­ate rights, par­tic­u­larly rights to receive ...
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GFC2?

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0
5 August 2011
Devouring Self

The inev­it­ab­il­ity with which global mar­kets would fall off their to-​date unreal­istic levels did noth­ing to mol­lify the depth and panic of the spasms. It has become a tru­ism that noth­ing in the struc­ture of inter­na­tional fin­ance has changed, save that the losses of private banks had been social­ised, lead­ing to the great weight of legal activ­ity fall­ing on the side of the gen­eral pop­u­lous who have been sub­jec­ted to vicious cuts. The bad debts had not gone away, the global trade imbal­ances remained set against US dom­in­a­tion, the com­plex products con­tin­ued to be pack­aged and issued under new titles, the reg­u­lat­ory con­trol remained min­imal, if not laugh­able. As such, it has been quite appar­ent to all but gov­ern­ments that ...
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Law and Infinite Debt

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0
20 April 2011
law-infinite-debt

In his cri­tique of free will, Spinoza’s first argu­ment against his oppon­ents, named (Heere­boord) and unnamed (Descartes, Aqui­nas, Bur­gersdijk) is that the intel­lect is not only the same as the will, but that in no way can the will be said to exceed the intel­lect.1 The pos­i­tion is char­ac­ter­ised as the claim that the will is cap­able of assent­ing to an infin­ite num­ber of things which could be per­ceived, but the intel­lect must be added to if it is to per­ceive any­thing more than it does. The will is infin­ite; the intel­lect is finite. Upon this ground is foun­ded a philo­sophy of law in which the power of the will is con­cret­ised as a fac­ulty, one which may be led by ...
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A Short Legal History of the Credit Crunch — Part 4 of 4

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1
17 February 2011
Luzern totentanz Ritterscherpalast

The suf­fer­ing spreads Our notional executive’s assump­tion about how industry would help the banks and the eco­nomy out of the Credit Crunch was in one ele­ment cor­rect. Bor­row­ers had bailed out the banks, but it was only by means of work­ers’ redund­an­cies, the strip­ping of the products of their labour, and in not a few cases an enterprise’s utter destruction. The pub­li­cised sui­cides of vari­ous busi­ness­men, such as Adolf Mer­ckle and Kirk Steph­en­son1 barely indic­ated the suf­fer­ing that was passing through com­munity after com­munity as employ­ers fol­ded and asset prices col­lapsed. In the UK, for example, the num­ber of people com­mit­ting sui­cide rose by 329 to 5,706 in 2008 — the first increase since 1998. The rate of sui­cide among men went up from 16.8 ...
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A Short Legal History of the Credit Crunch — Part 3 of 4

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1
16 February 2011
Matsijs, Quentin, The Moneylender and his Wife

At whatever time our indus­trial bor­rower first took on the credit agree­ment with which it found itself, in 2009, chained and broken before its fin­an­cial mas­ters, it is likely it only had a vague ink­ling that any­one bey­ond its rela­tion­ship bank was, or was to be, involved. It is an issue that depends on the size of the bor­rower – Gen­eral Motors would have such fin­an­cing needs that it would have expec­ted only mul­tiple banks to share the risk of such debt1. This model, called ‘syn­dic­ated fin­ance’, was developed in lever­aged fin­ance where the risk, due to the high debt to equity ratio, was spread amongst lenders so that no one bank bet the house on one bor­rower. Debt was sliced up by inter­cred­itor agree­ments, ...
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A Short Legal History of the Credit Crunch — Part 2 of 4

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1
15 February 2011
Quentin Metsys - The Moneylenders

With the Credit Crunch in the fin­ance sec­tor now caus­ing dele­ter­i­ous effects in the ‘real’ eco­nomy (see Part 1), con­cerned Fin­ance Dir­ect­ors (“FDs”) turned to their rela­tion­ship banks with a view to agree­ing how best to muddle through what appeared to be a tem­por­ary dip caused by a prob­lem in the arcane world of credit derivatives. Ini­tial con­ver­sa­tions between FD and bank revealed, how­ever, that the old story about nice bankers exist­ing solely to enable tal­en­ted people to build factor­ies for the bene­fit of the spe­cies, a story drummed into every FD from account­ing school, was utterly myth­ical. The banks’ bal­ance sheets were full of both holes and ‘toxic’ assets, and they needed to be repaired before any one of the banks went the ...
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A Short Legal History of the Credit Crunch — Part 1 of 4

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2
14 February 2011
Quentin Metsys - The moneylenders

In this series of four art­icles this week I exam­ine the course of the Credit Crunch from the per­spect­ive of the inter­face between the hyper-​financialised world of col­lat­eral debt oblig­a­tions and secur­it­isa­tion, and the more famil­iar world of indus­trial cor­por­ate debt. It is at this nexus that many of the sub­sequent devel­op­ments in the world eco­nomy can be loc­ated. It also provides a use­ful start­ing point for dis­cuss­ing legal com­plex­ity, rather than the ‘ante­cedent but not prin­cipal cause’ of the crisis, namely the bust in the Res­id­en­tial Mortgage-​Backed Secur­it­ies mar­ket, whose struc­ture oper­ated as a cul­min­a­tion of legal and eco­nomic innov­a­tions in var­ied fields, includ­ing that of cor­por­ate debt finance. With the mar­ket in secur­it­ies flat-​lining in 2009 and asset prices head­ing down­hill, one ...
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