Eric King always does a good interview, and Bill Laggner is a hedge fund manager (Bearing Fund, LP) who has been on top of the credit bubble and bust. He comes at things from an Austrian perspective.
- People of wealth around the world have lost faith in their respective governments.
- There is a limit to government borrowing, but establishment economists and politicians are very complacent right up to the end.
- Goldman’s swap transactions on Greek debt.
- Good luck getting Greece to go from 14% deficit to 3%. Mathematically impossible — Greece must default like Argentina did in 2001. They’ll probably leave Eurozone, and this may be best for each of them.
- Portugal, Ireland and Spain face the same issue. Spreads blowing out. Puts heavy pressure on European banks.
- Politicians and talking heads are saying sovereign debt issue is contained, just like they said sub-prime was contained.
- European banks are at least as levered as US banks were two years ago.
- We’re at a juncture where we can print and delay or default and get it over with.
- Some countries may realize they are better off defaulting than taking IMF money and being slaves.
- GS people have been hired by Greek government to advise on bailout.
- Monetary elites like GS face a risk of the structured finance business, their bread and butter, disappearing.
- GS and others don’t produce capital. They speculate and then siphon money from taxpayers when they lose.
- Goldman’s proprietary trading book is highly lucrative, much more so than most other investment banks’. They make money over 90% of the time – how is that possible if it’s all honest?
- Goldman was a credit facility for New Century, one of the worst loan originators in sub-prime. We’ll find out more about their roll in helping build a market for junk mortgages. Possible exposure of fraudulent practices.
- Goldman sold a lot of this mortgage paper on leverage — they provided loans to funds to let them go levered long CDOs.
- Civil litigation will open up Pandora’s Box. Where there illegal activities within Goldman? Possible reputational risk. If they survive, they’ll be a shell of their former self.
- US has the same problems as Europe. US cities and states are just as bankrupt as Greece.
- Local politicians are corrupt and clueless and bankers took advantage of them, as in Jefferson County Alabama.
- Criminal proceedings in Italy against Deutsche Bank should provide insight into possible bribery and fraud related to derivative transactions.
- Expect litigation related to US city and state derivative transactions, as in Jefferson County Alabama.
- Expect increased outrage towards bankers.
- No transparency in US financial system.
- As states and cities go bankrupt, expect them to default on derivative transactions and enter litigation.
- (My own note: what about government employee unions? If you’re looking for an explanation for municipal and state bankruptcies, look there first.)
- US financial reform bill doesn’t solve anything. Still have the moral hazard of too-big-to-fail.
- Geithner is walking moral hazard.
- Amazing rally in risk assets over the last 14 months. Complete about-face in sentiment. New low in bearishness.
- Bill and partner Kevin Duffy are two of the few remaining bears left on the planet.
- VIX is ticking back up, Fed has ended a key lending program, sentiment is too extreme, leading economic indicators are rolling over. Stimulus will wear off like any drug, and there has been nothing done to sustain economy.
- If central banks hit the accelerators on their printing presses to bail out bankrupt governments we could enter a hyperinflationary mode. If we go the route of default, that could be avoided (deflation).
Another great interview here with fund manager Eric Sprott — plenty of fodder here for commodity bulls:
Looks like the ECB is going to start QE or something similar with PIIGS debt (don’t know what else you would call agreeing to take Greek bonds at face value even though there is no hope of Greece ever paying them off). It’s going to all blow up at some point but I’ve been amazed at how long they have kept it up so far. I don’t think this can go on for too much longer but I’ve been way wrong in the past so who knows?