Streetwise Professor

October 23, 2012

And the Clueless Will Rule Us

Filed under: Economics,Energy,Politics,Regulation — The Professor @ 6:10 pm

In an effort to defend Obama’s debate #2 defense of his energy policy, Ed Markey, Dim-I mean Dem-MA is scandalized that 20 million acres of leases in the Gulf of Mexico are not being drilled.  (H/T Jim O.)  This part is priceless:

Markey’s study added that about half of the leases have been idle for at least five years and that 80 percent of the idle leases were purchased for less than $300 an acre.

So Ed is mystified that the really cheap leases are disproportionately idle.  I guess he would also be Shocked! Shocked! that deep out-of-the-money stock options are not exercised: why would someone buy a call on Apple struck at $2000 and not exercise it?

But that’s exactly what’s going on here.  The cheap leases are the marginal properties.  The way out-of-the-money development options.  Buyers are willing to pay a little for such properties, on the outside chance that either market developments (e.g., a huge rise in oil prices), or a technological shock (a new drilling method that makes previously inaccessible properties economic to develop), or a new piece of information about the property itself will make it economical to drill on it.

Voyaging into Ed’s head-a rather frightening journey, but anything for you loyal readers!-I imagine he thinks that the companies who leased these properties got a steal.  Hey-they’re cheap! Only $300!  Why don’t they drill?

Memo to Ed: cheap is cheap.   Note that 131 companies compete to lease in the GOM.  Given that competition, the price paid for leases is about the best estimate of value you can get.  That price reflects the option value, and the deep out-of-the-money drilling options will command a low price-and will be developed with very low probability.

But Ed knows better.  And O does too.

Yup.  The clueless presume  rule us, and do so with an infuriating amalgam of ignorance and arrogance.

Snark Doesn’t Change the Facts

Filed under: Military,Politics — The Professor @ 12:56 pm

Obama was at his petulant, condescending worst in the debate last night, this response to Romney’s statement about the declining number of ships in the Navy was the worst-of-the-worst:

“I think Gov. Romney maybe has not spent enough time looking at how our military works,” Obama shot back. “We also have fewer horses and bayonets because nature of our military has changed. “There are these things called aircraft carriers where planes land on them. We have these ships that go underwater, nuclear submarines.”

Remind me about that likeability thing again.  Not seeing it.

I’m pretty sure that Romney knows about aircraft carriers and submarines.  The issue is whether we have enough of those things now, not whether they are more capable than 1917-era Dreadnoughts.  Yes, it is an issue of capabilities: there is an intense debate whether after the precipitous decline in ship count in the past decade, we have enough capability. Snark aside, there is a serious case to be made that the Navy’s capabilities have declined dangerously, especially given the strategic re-orientation away from Europe and towards Asia, China, the Pacific, and the Indian Ocean.

Due to the precision and stealth revolutions, our platforms have much more capability now than in the early-90s.  A 600 ship Navy is not a necessity.

But at any time a large number of ships are being repaired or refurbished or modernized.  Moreover, the world’s oceans haven’t gotten any smaller, and the speed of ships hasn’t gotten that much greater, and American interests still touch on every sea.  Indeed, with an increased focus on the Pacific, the tyranny of distance is even greater than when the Atlantic and Med were the main theaters.  Especially inasmuch as the Navy will have to operate with less land-based air support in the Pacific vastness than in European or even Middle Eastern waters.

So ship count matters.  We have more capable ships, but a 20 percent increase (say) in combat power doesn’t lead to a 20 percent decline in the need for hulls.  There are indivisibilities.  A vastly capable carrier can’t be in two places at once, and we may well face multiple crises at widely dispersed places around the globe.

It is also particularly rich for Obama to lecture anyone on military matters.  He has no military experience.  He didn’t get any in the Illinois State Senate, that’s for sure, and didn’t get much more in the US Senate.

This is, moreover, a guy who calls Navy Corpsmen “corpsemen”, and whose party’s testimonial to the US military at its last national convention featured a huge photo of a line of ships.  Russian ships.  He, and most of his party, have zero interest in the military.  The butch posing is revealing.  A retort that is clever rather than wise: superficially impactful rather than thoughtful.

This comment drew high fives from Obama supporters, and it was great debate snark.  But methinks that debate snark is a negative when competing for the mushy middle that will decide the election, especially coming from a man whose military bona fides are thin to non-existent.   Snark doesn’t change the fact that there is a serious question as to whether we have naval capabilities-and the number of ships-commensurate with our strategic needs.

UpdateThis Max Boot post provides a good overview, and a reminder that, as Stalin said, quantity has a quality all its own.  It is worth remembering that during WWII Germany had a substantial quality advantage in armor and some aircraft, but that was irrelevant given the quantities of inferior weapons arrayed against it.

Also it is worth checking out Information Dissemination generally, and this (prescient) post on fleet size particularly.

La Plus Ca Change, Trading Edition

Filed under: Derivatives,Economics,Exchanges,Politics,Regulation — The Professor @ 12:11 pm

On Friday’s anniversary of the ’87 Crash, the WSJ put some of the articles from the days after on its website.  This one in particular makes fascinating reading, and is quite enlightening for those who pine for the good old days, when markets were slow and the livin’  (and tradin’) was easy.

For even back in those lost and lamented days when trading took place face-to-face on the floors, during times of market stress things seemed to move fast.  Very, very fast:

And the stock-index markets were leading the way down — fast. In a nightmarish fulfillment of some traders’ and academicians’ worst fears, the five-year-old index futures for the first time plunged into a panicky, unlimited free fall, fostering a sense of crisis throughout U.S. capital markets.

. . . .

Within seconds of the open, S&P 500-stock index futures prices sank 18 points — surpassing the nerve-racking record declines scored in an entire day on Friday. Salomon Brothers Inc. began unloading contracts at an unheard-of rate of 1,000 at a time, dumping more than $600 million in stock-index futures in the first hour of trading alone, one pit trader estimated. Salomon officials couldn’t be reached for comment on the estimate.

[Emphasis added.]

Note too that the big orders are not a modern phenomenon that arose only when HFT algos came on the scene.

And liquidity suppliers fleeing the market is not the monopoly of modern computerized trading where HFT is prevalent:

Then, as buyers fled the market in alarm, trading nearly dried up, temporarily preventing the markets from functioning as a hedging mechanism — their principal reason for existence.

. . . .

Yesterday, as institutions and investors scrambled to lay off at least some of their risk in futures, trading in the index markets virtually dried up at several points, threatening a liquidity crisis on the Merc’s trading floor. At mid-morning, the S&P prices were moving up two points, then back down, in less than a minute, as sellers scrambled to fill orders at any price they could get.

One difference between human and computerized market makers.  Computers don’t cry:

Up the street at the Chicago Board Options Exchange, a market maker wept softly in the men’s room.

One other thing from the article caught my eye:

With trading delayed in many major New York Stock Exchange issues because of order imbalances, Chicago’s controversial “shadow markets” — the highly leveraged, liquid futures on the Standard & Poor’s 500 stock index — were, for just a few minutes, the leading indicator for the Western world’s equity markets.

Shadow markets. Really?  The only market that was open for a while, the only one that was discovering prices-that’s the shadow market?  An interesting comment on the WSJ’s-and Wall Street’s-attitude towards futures markets at the time. Note that now, futures markets are considered worth emulation, and the demonization has been focused on the new “shadow market”: OTC derivatives trading.

As I’ve written numerous times: things aren’t all that different now.  The economics of markets and market making are pretty much the same in computerized and open outcry environments.  When it hits the fan, things move very rapidly in both.  There is no Golden Age of leisurely markets.

Switzerland is Too Hot, So Putin’s Buddy Gennady is Decamping to Russia

Filed under: Commodities,Energy,Regulation,Russia — The Professor @ 9:59 am

I doubt that he’s making the trip in a sealed train, but an important and shadowy Russian figure is leaving Geneva, Switzerland to return to Russia.  That would be Gennady Timchenko, co-owner of the trading firm Gunvor.  You know, the one that is frequently linked with the guy Timchenko claims to know only slightly, Vladimir Putin.

Now, this isn’t comparable to Lenin returning to Russia to foment a revolution, but why would anyone in their right mind want to leave Geneva for Moscow?  And no, starting a construction holding company is not a good reason.  At least he didn’t say he wants to spend more time with his family.

A major risk that commodity trading firms face is legal risk-particularly if they deal with unsavory regimes.  Gunvor’s activities in the Congo are one example that has apparently drawn the scrutiny of Swiss investigators. Gunvor was also the subject of an article in the Economist about oil price manipulation, specifically, manipulating the market for Urals crude.  That has apparently attracted scrutiny of the Justice Department here in the states.  Although some have said that this is likely to be a civil investigation, that’s not my read: CFTC handles civil manipulation cases under the CEA, but Justice handles criminal. (Ask BP.)

And I wonder if there is any connection between the questions about Gunvor’s manipulation of the Urals market and its recent failure to win any tenders in that market, which it once dominated:

Trading house Gunvor – dubbed by dealers the king of Kremlin oil – has been left with no Russian crude to sell. That was the surprise outcome of the latest big Russian crude oil sales tender, for long routinely won by Gunvor.

The result has sparked an intense debate in the industry about whether Gunvor’s co-owner Gennady Timchenko is out of favour with the Kremlin – or whether the firm is merely fine-tuning its strategy before embarking on yet another phase of spectacular growth.

Could be a coincidence, but an interesting one, no?

Given the legal heat, perhaps there’s good reason for Gennady to decamp to a far chillier, but more legally congenial, climate.  A place where he almost certainly has protection from the chief protector, and one that doesn’t extradite.

Very much worth watching.

October 21, 2012

Coase Visits Haynesville

Filed under: Commodities,Energy — The Professor @ 3:48 pm

The NYT has a very long piece on how E&P companies are singing the blues about the low prices following on the unexpected surge in natural gas production.  Stop the presses.

What’s interesting to me is a point made in the article that I’ve seen raised repeatedly, and which I find curious, given my Coasean bent.  Specifically, that lease terms force companies to continue drilling to maintain leases, even if the wells can’t make money in a low price environment.  That is, the leases have use-it-or-lose-it-clauses:

The land that the natural gas companies had leased, in most cases, came with “use it or lose it” clauses that required them to start drilling within three years and begin paying royalties to the landowners or lose the leases.

. . . .

Exco, Chesapeake and others initially boasted about how many acres they had managed to lock up. But after paying bonuses of up to $20,000 an acre to the landowners, the companies could not afford to lose the leases, even if the low price of natural gas meant that drilling more wells was a losing proposition.

. . . .

The bust has certainly hit the Haynesville hard. Some local landowners, having spent their initial lease bonuses, are now deeply in debt. Local restaurants and other businesses are suffering steep losses now that so many drillers have left town.

The Coasean reply is to say: if drilling is inefficient, why not negotiate out of the use-it-or-lose-it-clauses?  There is a pot of money-the costs of excessive or premature drilling-that could be divided between the company and the lessor.  Why can’t the lessors and the lessees strike a deal to split that pot of money?  What are the transactions costs that preclude renegotiations that reduce excessive and premature drilling/production?  Is it the large number of lessors?  That is, are the costs of renegotiating each lease bigger than the benefit to be gained from rationalizing drilling and production?  Then why don’t companies like Cheseapeake just offer a standard deal to lessors, such as a fixed payment, or a fixed fraction of the original lease, or a fraction of the royalties from production, and let lessors take it or leave it?  Why are these clauses in the leases in the first place?

Interesting TCE questions.  I’d love to hear some answers, because I’m stumped.

Speaking of Haynesville, Gregory Kallenberg, the director of the movie Haynesville, has produced a series of short films (sponsored by Shell) about the future of energy.  The series is called “The Rational Middle.”  I appear-briefly-in several of the films, which can be viewed at the link.  I participated in a screening/panel discussion in Houston last Wednesday, and recorded material on conservation and efficiency that may appear in the next round of pieces.

October 19, 2012

It Was on Comedy Central, But I’m Not Laughing

Filed under: Military,Politics — The Professor @ 7:15 pm

Subjecting himself to another grueling interview from a grizzled, hard-hitting journalist, Obama told Comedy Central’s John Stewart that: “Here is what I will say, if four Americans get killed it is not optimal.”*

This brought to mind other similar quotes from history:

FDR: “What happened in Pearl Harbor on December 7 was not optimal.”

Napoleon: “Ce qui s’est passé à Waterloo n’était pas optimale.”

Anne Boleyn’s head: “Marrying Henry was not optimal.”

I encourage all of you to provide other historical quotations relating to sub-optimal occurrences.

The mother of one of the victims of the failure to optimize is not humored by what transpired on Comedy Central:

The mother of an American diplomat killed during a terrorist raid on the U.S. consulate in Benghazi has hit out at Barack Obama for describing the attack as ‘not optimal’, saying: ‘My son is not very optimal – he is also very dead.’

Uhm, why do we have to read about that in a UK paper?  I remember Cindy Sheehan being on every major media outlet in the US, blaming Bush for the death of her son.  Sean Smith’s mother: non-person.  And that despite the fact that Bush never uttered anything as callous and euphemistic as Obama has not once, but twice-for remember before the deaths of four Americans in Benghazi wasn’t optimal, they were “a bump in the road.”

How low we have fallen.

*Note the CBS News weasel headline, which states only Obama’s statement that the administration’s PR response was not optimal, eliding altogether over his statement that the deaths of four Americans was not optimal.

Do No Evil. Got it. Strong Quarter. Got It. Like I Said: The Most Orwellian Corporation Ever

Filed under: Economics — The Professor @ 4:10 pm

Google insiders, including Larry Page, Sergei Brin, and Eric Schmidt were big sellers of stock in late-September through mid-October.

Google Inc. (NASDAQ:GOOG) chairman Eric Schmidt was very active in late September, as he executed 226 transactions in just three days from Sept. 24 to 26, selling off more than 211,000 shares at per-share prices between $742 and $764 per share. He came away with about $158 million.

Other noteworthy insiders are Google Inc. (NASDAQ:GOOG) CEO Larry Page and co-founder Sergey Brin, who had conducted several insider sales in the first half of this month, totaling about $120 million in value and the pair spared themselves about $12 million in combined losses. Brin conducted a series of transactions Tuesday, October 2, selling 83,334 shares at between $750-$765 a share, with a combined value of at least $62.5 million. Page had been selling shares regularly over several days. Starting October 8, he sold 20,833 shares at $754-$762 a share for a value of $15.7 million; 20833 shares at $744-$760 October 9, for a value of $15.5 million; 20,833 shares at prices between $741 and $746 per share October 10, for a value of $15.4 million; and 20,835 shares at prices between $752 and $758 October 11, a value of $15.7 million.

So tres hombres sold about $278 million in stock at a time they had to  know Q3 results would be awful. Thereby saving themselves about $28 mil.

Let’s revisit Larry’s remarks regarding these results, shall we?:

“We had a strong quarter,” Page’s statement said. “Revenue was up 45 percent year-on-year, and, at just fourteen years old, we cleared our first $14 billion revenue quarter. I am also really excited about the progress we’re making creating a beautifully simple, intuitive Google experience across all devices.”

“I’m really happy with our business…Not bad for a teenager,” Page added on the earnings call.

If it was such a freaking strong quarter, why were y’all (hey, I’m a Texan now) selling, not buying?  Do you think we’re teenagers-glue huffing teenagers, at that-who will fall for that smack?

Dunno enough about insider trading laws to know if tres hombres are at any legal risk.  But if they are on the right side of the law, they are definitely on the wrong side of the optics, especially given Google’s predilection for moral preening. Not that the media fanboys and fangirls who fall at Google’s feet will point that out.

Like I’ve said before: The Most Orwellian Corporation Ever.  If you had any doubts before, you shouldn’t now.  If you do, you aren’t paying attention.

25 Years After: The Real Lesson of the Crash

Filed under: Clearing,Economics,Exchanges,Financial crisis,History,Politics,Regulation — The Professor @ 10:07 am

Today is the 25th anniversary of Black Monday, the 1987 Crash.  This event had a profound effect on my professional trajectory.  I worked at an FCM at the CME-GNP Commodities-during the Crash.  The firm was owned and run by Brian Monieson, a former chairman of the Merc, and a board member at the time.  I walked into his office on the morning of the 20th, and he told me about how the CME clearinghouse had almost failed.  I had only a dim appreciation for clearing prior to that, but that sparked my interest in the subject.

Little known fact: I Granger Caused the Crash.  Throughout the late summer and fall of  ’87 I had been having issues with my direct boss, and soon after I defended my thesis in August I had received a good offer from one of my advisors, Dennis Carlton, to work at Lexecon.  I tried to work things out at GNP, but by mid-October it appeared hopeless.  I told Brian, and we had several phone calls on the 17th and 18th where he tried to convince me to stay.  I thought it over, and on the evening of the 18th decided that it wasn’t going to work.  So I walked into my boss’s office at 7AM on the 19th and slapped down my resignation letter on his desk.  Apparently the news leaked, and the rest is history 😛

The anniversary has spurred retrospectives from many quarters.  Many of these focus on the role of computers in the Crash, and how this was a harbinger of the supposed horrors the machines are inflicting on the markets today.  One good-well, representative-example of this is “Rage Against the Machine” in the FT:

It has been 25 years since Black Monday, when stock markets crashed around the globe and Wall Street woke up to the risks of computerised trading.

Yeah.  The computers were blamed then.  Suspect number one was “program trading”, a good deal of which was garden variety index arbitrage.  This is not a destabilizing strategy, and numerous postmortems absolved program trading as a cause or aggravator of the Crash.

Indeed, if technology was a problem, it wasn’t that computers were trading too fast: it was that printers were printing to slow.  Seriously.

At GNP we did a little index arb trading.  In the morning, it appeared that the arb was extremely profitable.  The price of the cash index (we were doing MMI) was way, way above where the futures were trading.  It looked like a great opportunity.  My colleague Matt who was in charge of this called down to the CBT floor before doing a trade, to see where the floor was trading.  Our floor clerk said (I don’t remember the numbers exactly): “Somebody is offering X over here.  Somebody else is offering X+20 over there.  Somebody else is offering X-20 over there.  I have no fucking idea what the price is.”  Matt didn’t make the trade.

Which was good, because the apparent opportunity was a mirage.  That’s where the slow printers come into play. Specialist posts on the NYSE had old fashioned daisy wheel printers.  Very, very slow.  They were overwhelmed by the order flow.  At 10AM the printers were spitting out orders that had been entered at 8 or earlier.  So the orders being executed on the NYSE were actually very stale, and the prices didn’t reflect current market conditions.  The futures didn’t have that problem.  So at 10 or 11 NYSE prices were reflecting orders submitted hours before, and the futures were reflecting current conditions.  Hence the futures were way below the cash, making it appear that there was a huge arbitrage opportunity.

The problem was that this induced more people to submit sell orders to the NYSE before they caught onto the fact that NYSE prices were not reflective of current conditions.  This exacerbated the backlog on the printers.

So it wasn’t fast technology that caused problems on 19 October ’87.  It was slow technology.

Program trading wasn’t an issue, really, but portfolio insurance was.  This is sometimes called “computerized trading” but it’s not, really.  Yeah, computers were used to calculate deltas, and these deltas were used to determine trading strategies.  You could have used an HP-12C (complete with Reverse Polish Notation!-and no, that’s not an ethnic joke) and the normal cdf table from Handbook of Tables For Mathematics (pp. 922-929 of the Fourth Edition) to do the same thing.

The problem with portfolio insurance was that, unlike index arbitrage and most market making strategies employed today in HFT, it was a positive feedback strategy, rather than a negative feedback strategy.  As prices fell, portfolio insurers had to sell more, which drove down prices further, which led them to sell more . . . until they pulled the plug on the strategies.  That is, unlike market making strategies which are buy low-sell high trades, portfolio insurance was buy low, sell lower.

The FT article uses the ’87 Crash as a springboard to make the usual litany of complaints about current market structure and computerized trading.

Some of the criticisms are defensible.  The current fragmentation of equity structure in the US is indeed the product of SEC RegNMS, which I characterized at the time of its introduction as implementing an “information and linkages” approach to market structure, in lieu of mandating a CLOB.  This socialization of order flow has some problems, particularly during times of market stress.  Links are vulnerable during times of stress.  Moreover, the proliferation of order types that has complicated trading dramatically is directly the result of this approach: many of the new order types are related to order routing, which is a much more complex task with many execution venues as opposed to one (as in futures markets where order flows are not socialized).

Other criticisms are less defensible.  The authors of the FT piece are apparently scared of the dark, as they warn of the dangers of dark pools.  These things are not new.   They just used to be called “third markets” or “block markets”.

The FT piece also warns that in the computerized world, liquidity can evaporate quickly.  They acknowledge that liquidity evaporated quickly in the old days-as it did on Black Monday-but suggest that can happen more quickly today.  Not really.  At all.  Locals could shut up or keep their hands in their pockets very quickly back on the floor if it looked like order flow was getting toxic.  And they were pretty quick at picking up on that.  Moreover, during the Crash clearing firms pulled their locals from the pits.  You would have thought that the pits would have been in a state of pandemonium on the 19th, but after the initial frenzy, they were actually spookily empty, as most locals and many brokers had been yanked from the floor by their clearing firms.

In brief, the functions of markets haven’t changed.  The technology for performing these functions has.  But the fundamental economics of performing the functions hasn’t.  Face-to-face and machine-to-machine markets have the exact same basic vulnerabilities.  Those who focus on the technology miss the economics.

The FT article, and others like this one in Bloomberg,  blame computerization and HFT, and the consequent alleged “loss of confidence” among investors, for the decline in equity volumes recently.  Color me skeptical.  Futures volumes have dropped too, despite a very different market structure, and a different composition in market users.

Historically, trading volume has ebbed and flowed.  It ebbed and flowed in the pre-computer era. It shouldn’t be any surprise that it ebbs and flows now.

If you are looking for the big lesson from the  1987 Crash that we should heed today, ignore all the BS about technology.  Look at clearing.  Look at the Brady Report and other post-Crash studies of what happened in clearing.  That’s what almost brought the markets down.  The operation of variation margining-which is usually a source of stability-threatened to bring the markets to a halt, with even more devastating consequences.

Then think of what will happen during the next big market move, given that the scope of clearing has been expanded substantially due to Frankendodd, and parallel efforts around the world.  Don’t worry about the technology of execution: worry about what happens after the trade, during clearing and settlement.  That’s where the truly systemic vulnerability lies.

There’s an old adage in the military: amateurs talk tactics, professionals talk logistics.  In the markets, the parallel is that most commentary focuses on execution, when much of the real important action happens out of sight, in clearing and settlement-the logistics of the financial markets.  That happened in post-Crash commentary, and it is being repeated today.  That’s a big mistake.  When looking for object lessons from Black Monday, don’t look at the computers and the execution of trades.  Look at what almost happened with disastrous consequences in clearing.  And worry deeply about how the system is vulnerable to a repeat in the future.  Arguably more vulnerable, given the dramatic growth in the size of the markets and the mandated reliance on clearing, and margining of non-cleared derivatives.

That’s the lesson I first began to grasp in Brian’s office early on 20 October.  And that experience has decisively shaped my criticism of efforts, like Frankendodd, intended to fix the markets.

October 18, 2012

High Frequency Scapegoating

Filed under: Economics,Exchanges — The Professor @ 7:50 pm

As soon as I heard about Google tanking 10 percent, leading to a trading halt, in response to a prematurely released earnings announcement, I asked myself: “I wonder how long before someone blames HFT.”  I didn’t have to wait long.  Almost immediately afterwards, Jim Cramer (gag) and Harvey Pitt were on CNBC putting the blame on computerized trading.

Let me get this straight.  Extremely bearish information about GOOG is released.  GOOG immediately tanks.  Trading in the stock is paused.  On resumption of trade, the stock trades a little off its lows, but 8 percent below the pre-information level.

Uhm, isn’t that the way efficient markets are supposed to work?  Aren’t prices supposed to drop immediately upon the release of bad news, and stay down (absent any offsetting good news)?   Didn’t this happen before HFT?  Like forever?

So what’s your problem, Cramer?  (I’m talking about the market, not you personally-I don’t have enough time to even begin with your issues.)  Are you just ticked that the price doesn’t move down slowly, giving turkeys like you a chance to make money at the expense of even slower turkeys?

I often quote Captain Renault (Claude Rains) from Casablanca to describe how any price move in commodities is pinned on “speculators”: “Round up the usual suspects.”  When it comes to any big move in the stock market, the only thing that has to be changed is to substitute the singular for the plural: “Round up the usual suspect.”  Because its always about HFT/algos.  High frequency scapegoating.

Google was PO’d at the premature release of the earnings numbers by RR Donnelly.  The main reason it was PO’d is that the premature release prevented it from spinning the awful news.  When it did have the opportunity, Larry Page delivered one of the most mendacious statements imaginable:

“We had a strong quarter,” Page’s statement said. “Revenue was up 45 percent year-on-year, and, at just fourteen years old, we cleared our first $14 billion revenue quarter. I am also really excited about the progress we’re making creating a beautifully simple, intuitive Google experience across all devices.”

“I’m really happy with our business…Not bad for a teenager,” Page added on the earnings call.

Who you gonna believe, Larry or the lyin’ market?

Do no evil.  More Orwellian by the day.

Banking Union: Tying Down the German Gulliver

Filed under: Economics,Financial Crisis II,Politics,Regulation — The Professor @ 12:50 pm

France’s President Hollande says that an EU banking union is the most important issue to discuss at the next Euro summit.

Even though it’s illegal.  Details, details.

Why is he so hot for this?  Two, related reasons.

First, a banking union is a gateway drug to a more complete political integration in Europe.  It is like the coal and steel pact that was the first stage to European integration.  But finance and banking are so pervasive, that it is a far more powerful way to achieve a broader political integration.

Second, it is a way of tying Germany even more tightly to France, and the rest of Europe.  If German financial institutions are tightly enmeshed in a European regulatory structure, it will be much harder for Germany to decide that the Euro isn’t worth the candle and leave.  This is vitally important to France, because it realizes that its financial position is extremely fraught.  This is also why French plans would include every bank in the regulatory net, including local banks like landesbanks, whereas the Germans want the banking union limited to big, systemically important entities.  Every bank that is included in the banking union is like a rope helping to hold down the German Gulliver and putting under the control of the European Lilliputians-acting under French direction, of course.

In other words, a banking union is a lot more about union than banking.  Hollande is being very Machiavellian, and it will be interesting to see how Germany plays this.

« Previous PageNext Page »

Powered by WordPress