

So long, euro? - cwan
http://www.economist.com/blogs/freeexchange/2010/04/european_crisis

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jackfoxy
If anything has been learned from the past decade's ramping up and unwinding
of the Collateralized Debt Obligations (and related matters), it's that
today's politicians and technocrats have taken leave of the notion of moral
hazard, as if they could repeal it. Until moral hazard comes back into vogue,
I fear the sky is the limit for the bad things that can happen because the
game will always be to act in your short term interest before the next guy
does.

~~~
wtn
Very true. Reminds me of this email I got recently from my brokerage:

While the Fed is lending money at almost zero interest rates, why not take
advantage of it through <brokerage name>? <Your broker> will lend up to
$566,000 at 1.25% for every $100,000 in a Portfolio Margin4 Securities Trading
account. As of 4/5/2010, more than 500 stocks had a dividend yield of 5% or
more.

~~~
jrockway
Your broker just buys a CDS on you, and then when you default, they get their
money and whatever stock you bought. And since most people don't default, the
bank that issued the CDS makes money too.

Playing numbers games helps everyone grow their capital. You just have to do
it intelligently.

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patrickgzill
Anecdotal evidence (i.e. a friend who knows someone in Greece) is that Greeks
are lining up at banks to withdraw all their funds, i.e. a classic bank run is
now in progress.

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roboneal
Ultimately, the "euro" experiment is doomed to failure. You can't have a
unified currency and monetary policy, while individual countries have
massively different domestic spending policies.

~~~
cabalamat
> _You can't have a unified currency and monetary policy, while individual
> countries have massively different domestic spending policies._

This is factually incorrect, because for over 1000 years European currencies
were backed by silver or gold and were thus the same, despite the fact that
European polities had vastly different spending priorities and indeed levels
of development.

~~~
roboneal
You may need to brush up on the history of currency. So called "gold and
silver" standards did not eliminate fluctuating exchange rates and
valuation/devaluation cycles.

For example:

"In 1663, a new gold coinage was introduced based on the 22 carat fine guinea.
Fixed in weight at 44½ to the troy pound from 1670, this coin's value varied
considerably until 1717, when it was fixed at 21 shillings (21/-, 1.05
pounds). However, despite the efforts of Sir Isaac Newton, Master of the Mint,
to reduce the guinea's value, this valuation overvalued gold relative to
silver when compared to the valuations in other European countries"

<http://en.wikipedia.org/wiki/Pound_sterling#Gold_standard>

So even in physical coin form, this only worsened with introduction of paper
notes, individual currencies fluctuated in valuation from country to country.

Thus, European currencies historically were not "the same".

~~~
cabalamat
There were fluctuations of gold relative to silver. There were not
fluctuations of gold relative to gold, or of silver relative to silver.

~~~
roboneal
You a projecting modern commodity trading exchange concepts onto history -
until the advent of "virtual" trading of gold - there DEFINITELY was
fluctuations of the value of gold and silver between countries.

------
Keyframe
More of a temporary setback and more centralized decisions and restrictions in
the future. I really can't see anything not normal happening for a new
currency/"government in the making" on the block.

~~~
wtn
You may see this as a "normal" transition period but that doesn't mean EMU
will survive intact. Sovereign debt crises (plural) and bank solvency are huge
problems for several EMU states.

If one EMU state defaults on sovereign debt, there will be a chain reaction in
the banking system and the debt markets. Several states are at risk of
defaulting.

The politics remain highly unpredictable.

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steveplace
When I see headlines like this I think "So, long euro."

~~~
eru
Being contrarian can be profitable. Are you willing to put your money where
your mouth is?

~~~
steveplace
I traded the euro (6E futures) long yesterday, so yes.

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rue
So long, Euro? No. Seriously?

Meanwhile, in reality, it was about time for the euro to come down against the
dollar. Macroeconomically too, of course, but on a personal level a ~10%
effective gross wage increase (or reversal of decrease to be precise) is quite
alright with me.

