Nasty article in Der Spiegel, Out of Control: The Destructive Power of the Financial Markets, which helps explain what’s behind the financial transactions tax that was recently introduced by Angela Merkel  and Nicolas Sarkozy.  The article opens,

The enemy looks friendly and unpretentious. With his scuffed shoes and thinning gray hair, John Taylor resembles an elderly sociology professor. Books line the dark, floor-to-ceiling wooden shelves in his office in Manhattan, alongside a bust of Theodore Roosevelt and an antique telescope.

Taylor is the chairman and CEO of FX Concepts, a hedge fund that specializes in currency speculation. It’s the largest hedge fund of its kind worldwide, which is why Taylor is held partly responsible for the crash of the euro. Critics accuse Taylor and others like him of having exacerbated the government crisis in Greece and accelerated the collapse in Ireland.

The vitriol for hedge fund types is ubiquitous, but there is also a some truth in the article, especially on regulatory issues.  Swedish Finance Minister Anders Borg refers to people like Taylor as “like a pack of wolves.”  New York Governor Andrew Cuomo even gets into the mix as once likening short-sellers to “looters after a hurricane.”

Here are some more money quotes from the piece, which is well worth your time:

- The truth is that the financial markets are controlling the politicians.

– The markets take advantage of every weakness and every rumor to speculate against one country after the next.

-  Stock markets are currently in turmoil. Even the most experienced equity traders cannot remember a time when prices fluctuated as widely from day to day — and often even within a single day — as they have in recent weeks.

- But without the destructive power of the banks, hedge funds and other investment companies, the world would not be where it is today — at the edge of an abyss.

- Many things that happen on Wall Street and in London’s financial district are “socially useless,” says Lord Adair Turner, chairman of Britain’s Financial Services Authority (FSA).

- Flassbeck believes that the crises in the globalized economy have “a common root, namely the inability of economists to correctly interpret the world.”

-Of all people, it was an academic specializing in literary studies who managed to most accurately analyze the insanity of the financial markets and the impotence of economists.

- When Deutsche Börse decided to move from Frankfurt to the nearby town of Eschborn, the town saw a rapid increase in the demand for air-conditioned basement space, where so-called high-frequency traders, as well as banks, set up their state-of-the-art supercomputers.

- The traders at Deutsche Bank are apparently more clued into who holds Greece’s government bonds than the Greeks themselves.

- Speculation has always existed in economic history, but never to such an extent as today.

- German Chancellor Angela Merkel knows that there is more at stake than the stability of the economy and overcoming a temporary weakness. “This type of crisis cannot be allowed to repeat itself in the foreseeable future,” Merkel said, “otherwise it will be extremely difficult to guarantee political stability, and not only in Germany.”

- Following the near-collapse of the markets, then-German President Horst Köhler characterized the financial markets as a “monster.”

- Jochen Sanio, head of Germany’s banking regulatory agency, believes it is highly likely that the next crisis will emanate from this largely unregulated realm of hedge funds and other financial players.

- When asked whether it is possible to make future crises unlikely, Hilmar Kopper, the former CEO of Deutsche Bank and current chairman of the supervisory board of HSH Nordbank, replies with a simple “no.” According to Kopper, more huge financial bubbles could happen in the future.

Let’s get ready to rumble!

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Source:
The Destructive Power of the Financial Markets
DIETMAR HAWRANEK, ARMIN MAHLER, CHRISTOPH PAULY, MICHAELA SCHIESSL AND THOMAS SCHULZ
Der Spiegel, 8/22/11
http://www.spiegel.de/international/business/0,1518,781590,00.html

Print
http://www.spiegel.de/international/business/0,1518,druck-781590,00.html

Category: Bailouts, Derivatives, Regulation, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Spiegel: The Destructive Power of the Financial Markets”

  1. Moss says:

    Such is the world of fiat, non Gold backed currencies.
    The financialization of everything possible has established ‘markets’ in economically useless instruments denominated in these currencies. Every sector of the ‘real’ World economy is now dominated by the machinations of the financial sector. It is clearly a case of the tail wagging the dog. Everything is now subservient to the financial markets.

    ~~~

    BR: fiat, non Gold backed currencies? Thats a bit of a stretch

  2. dead hobo says:

    Sorry, but profits generated by being able to create unnecessary middleman costs are not a benefit to society. They just benefit the middlemen. If those middlemen didn’t exist then I could spend that money elsewhere and let someone productive with value make the profits, instead.

  3. dead hobo says:

    Or, to put it more simply, just because we have some fat and happy parasites, that doesn’t mean we need them, want them, that they add value, or that some competent medical treatment isn’t required. When did successful parasites start deserving equal treatment under the law? They’re still only parasites.

  4. call me ahab says:

    some are always so quick to blame traders, instead of blaming the policies of governments (that create the opportunities for traders)

    ~~~

    BR: Are you arguing the private sector is not responsible for the collapse and crisis, and it was government’s fault?

  5. Petey Wheatstraw says:

    “When did successful parasites start deserving equal treatment under the law?”
    _________________

    Somewhere around 1980, and it’s preferential treatment.

  6. mathman says:

    Let’s start off with this:

    http://blogs.reuters.com/felix-salmon/2011/08/23/how-to-get-12-billion-of-gold-to-venezuela/

    and closer to home:

    http://www.thestreet.com/story/11224917/1/a-huge-housing-bargain–but-not-for-you.html

    of course the earthquake here on the east coast is just a small part of what’s been going on globally:

    http://www.youtube.com/user/dutchsinse#p/u/0/aEDfGPOxWLM

    and within the week we’ll also have to deal with a (probably category 2) Hurricane Irene.
    Fun times ahead, i’m sure!

  7. call me ahab says:

    BR,

    only talking about currency traders . . ..

    isn’t that what this article is about?

  8. [...] Europeans ready to wage full-scale war against banks and hedge funds.  (TBP) [...]

  9. m111ark says:

    Mis-information, mis-direction … how many words can you come up with for stupid monkeys spewing stupid crap! If there were any people of integrity left in the financial world that (assuming there is at most one of such persons) spoke the truth he say that it’s the debt based money that only banks are allowed to create OUT OF THIN AIR that is the problem. As long as we’re talking about consequences rather than causes there will be no solution.

  10. royrogers says:

    “Moss Says:

    August 24th, 2011 at 6:33 am
    Such is the world of fiat, non Gold backed currencies.
    The financialization of everything possible has established ‘markets’ in economically useless instruments denominated in these currencies. Every sector of the ‘real’ World economy is now dominated by the machinations of the financial sector. It is clearly a case of the tail wagging the dog. Everything is now subservient to the financial markets.

    ~~~

    BR: fiat, non Gold backed currencies? Thats a bit of a stretch”

    I would assume a gold backed currency would not prevent
    the industry from creating idiotic derivates to be sold to the next sucker.
    Create derivatives for gold , create derivates for anything.

  11. AnnaLee says:

    BR, I would like to take advantage of this part of your comments invitation: “demonstrate your own ignorance” to ask questions that have bothered me for some time.

    As long as there is one place in the world that allows any type of trading to exist, is there any way that any one sovereign nation can protect their citizens from the ravishes that might come from that one place in the world?

    If one nation tries to control the financial markets to attempt to protect their citizens, will financial and non-financial businesses move to other nations to avoid the regulation?

    Do financial businesses have more power than any sovereign nation? More power than the developed nations together?

    Can markets print money in any currency without the consent of nation that issues that currency through speculation and debt within their own transactions?

    Can financial players cause markets and destroy markets short term?

  12. AHodge says:

    europe and germany in particular have a bigger banking mess than USA
    many in Buba get it
    Max Weber large and in charge, bulldozed everyone
    i had two talks w him the latter one on one’
    at the first in April 2008 he steps up to the gathering and says about marking and transparency
    “Zis is not somthing ve need to worry about”, witha backhand wave and a sniff.
    even more adamant round two may 2009 was not willing to admit any concerns.
    not the first time the reich got in trouble w charismatic leadership.

  13. AHodge says:

    while his minions esp the BUBA NYrep looked embarassed and cringed after the first

  14. number2son says:

    Once again, the Swedes are right. Heja Sverige!

  15. DeDude says:

    If an activity only serves the purpose of letting parasites take money out of the productive economy, it should be banned. At least half of Wall street need to find a real job and begin contribute to society rather than contributing to its destruction.

  16. Great Caesars Ghost says:

    BR, what the financial markets are seeking is a harbinger for unbridled capitalism. The financiers are looking for a warm place were anything goes cheap money, cheap labor, cheap input costs and most of all no financial regulation at all.

    It is inevitable that this unbridled capitalism will consume itself at some point and come to an end and take all of us with it, if allowed to continue.

    Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy, the moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days, my friends, will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves, to our fellow men (FDR Speech 1933).

  17. m111ark says:

    This is directed to royrogers and anyone else who thinks fiat money is a problem. It’s not. Debt money created by private banks IS the problem because that’s all that money is – DEBT!!! IF, all people, including those in government and private industry and, come to think of it, ALL PEOPLE in the US, were to actually become responsible citizens rather than mere inhabitants of the US… then we might actually make progress toward government issued, debt-free money which would solve 99% of our problems.

    PS thanks for deleting my rant.