Marty: “You know in Greece they cut off the head of the messenger who brought bad news.”
Visser: “Now that don’t make much sense.”
Marty: “No. It just made them feel better.”
From the screenplay to ‘Blood Simple’ by Joel and Ethan Coen.
When you are a government and your finances are shot, pinning the blame on speculators as opposed to your own fiscal incompetence is always an option. Even that term ‘speculators’ may be overly contentious, though after the banking crisis set in, it’s now fashionable for governments to point the finger at all financiers since that helpfully distracts the electorate from the loathsome venality and brazen inadequacy of elected officialdom.
(UK voters may wish to recall and give thanks for how the Usual Suspect inevitably rounded up whenever currency markets gyrate, George Soros, saved the UK from a fate worse than Sterling, namely the Euro. Masahiro Sakane, chairman of Japanese construction and mining equipment-maker Komatsu, conceded as much on Friday when he expressed relief in an interview with the FT that Britain had decided not to join the Euro bloc.)
So it has been sad but probably inevitable to see market regulators – you know, the bodies tasked with the mission of ensuring banks were prudently run; oh, never mind – examining what are likely to be perfectly legal trades in both the (Euro) foreign currency market and (Greek) credit default swaps. The US Department of Justice has separately rounded up some of the higher profile usual suspects, i.e. hedge funds, in the form of SAC Capital Advisors, Greenlight Capital, Paulson & Co and Soros Fund Management, darkly hinting at the existence of something that used to be called a concert party, though that phrase now seems like more of a throwback to the days of HMS Titanic.
But it is banks and latterly politicians, and not hedge fund managers, that have been at the helm as the iceberg approached.
The larger hedge funds are big enough, successful enough and rich enough not to need us to defend them, but it is extraordinary how gullible the regulators believe electorates to be. The last time we checked, not a single hedge fund had sought or been given a penny of taxpayers’ money to see it through a sector-wide crisis not even of its causing.
Hedge funds do serve as a welcome distraction, however, whenever the markets start to highlight things that are fast becoming untenable, such as a lingering belief in Greece’s ability to put its own fiscal house in order, or in the Euro fulfilling the function of a global reserve currency when half of its members are approaching technical insolvency, having performed accounting contortions that in the private sector would be classified as illegal. Perhaps banks’ prop. desks also have some positions in the Euro and in Greek CDS not to the taste of the European regulators.
But having shelled out so many millions of other people’s money to support them, it would be churlish to criticise the sort of trading helping them return to profit. Much better to punish hedge funds, especially since you need to be rich just to know about them.
Ronald Reagan once said that Government’s view of the economy could be summed up in a few short phrases. If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it. We can now add a further codicil: if it reveals fundamental inconsistencies at the heart of your economic policy, pretend it’s illegal.
Perhaps this is only what we should expect from administrations that, faced with an imploding, deleveraging and deflating credit bubble of monstrous proportions, now have two years’ experience of policy-making on the hoof. What should concern all investors, and not just hedge fund managers, is that law-makers are in the distressing position of being able to change the law. You thought foreign exchange markets were free and open ?
They are, so long as your position-taking squares with the stability of our pet currencies and political projects. The only question now is whether what passes for a free market in investments, overseen by today’s politicians and regulatory functionaries, is closer to an Orwellian dystopia or to a Lewis Carroll-style Looking Glass asylum.
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