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.
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The Destructive Power of the Financial Markets
DIETMAR HAWRANEK, ARMIN MAHLER, CHRISTOPH PAULY, MICHAELA SCHIESSL AND THOMAS SCHULZ
Der Spiegel, 8/22/11
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