Irreverent Economics

When a country is facing crisis, governments like to blame anybody else, like foreigners. Mahathir Mohamad, former prime minister of Malaysia provides some good examples, as reported in the New York Times:

Prime Minister Mahathir Mohamad has unleashed a series of verbal attacks on everyone from Jews to currency traders to unidentified ”sinister powers.” … Malaysia’s troubles might be the result of a Jewish ”agenda” to weaken the economy of this country of about 20 million people.

Indeed, many leaders blamed foreign hedge funds, and others for the speculative attacks during the Asian crisis. The post mortem found that it was rather the locals who attacked, with the foreigners rather defending. (For more in this see here and here).

After all, who is best informed, the presidents cousin, who happens to run the country’s largest bank, or some hedge fund manager in Connecticut?

Same happened in Argentina,

and now in Greece. While the government and the EU is busy blaming foreigners for not buying its dodgy debt, and helping the government hide its obligations, here comes a local bank —  state controlled, no less —  speculating on the government defaulting. Details here and here. Some things never change.

CDSs are not the flavor of the month among European politicians and pundits.  Mario Draghi, chairman of the Basel-based Financial Stability Board, discussing CDSs in the Greek context says

“This way of betting has systemic implications. The sense I have is that governments are increasingly uneasy with this …  Whenever something has systemic implications, you can bet it is going to get systemic regulation . . . It’s very unlikely that these markets will be left in the same state as they were before the crisis.”

Merkel has also blamed them for undermining the Greek bond markets.

So, if there was no CDS market, would there be no problems in the Greek bond market?

Aren’t they putting the cart before the horse?

Shooting the messenger.

a nice take on this in the WSJ, Evil Speculators At It Again