Euro Cop: Playing With a Hedge Fund Near You is a post from: ACRIMONEY the Wild Wild World of Wealth

The E.U. is getting tough with member nations according to The New York Times. Strong warnings to Germany, France, Spain, Italy, and the Netherlands. Get your your budget deficits in order, or else…. Excuse me if I don’t buy it. Here are three things you must know about the E.U.’s track record:

1. Nations, which use the Euro as their currency, agree to limit annual government deficits to 3 percent of GDP. But the E.U. has never once levied a fine for non-compliance. (Greece turned in a 13 percent ratio for 2009.)
2. These nations also agree their total government debt will never exceed 60 percent of GDP. But in aggregate, E.U. nations have never met this requirement since the Euro’s inception.
3. Before the Euro was introduced, the founding nations debated whether to make fines automatic for non-compliance. The idea was to eliminate politics. Fines would be levied—robocop style—the minute any member violated the 3 or 60 percent rules. But the provision never passed.

The E.U. has the power to levy fines on member nations. There is no absolute mandate, however, and given historical behavior I doubt we’ll see any enforcement. Just talk.

What’s behind E.U. warnings? I bet they realize it’s not enough to blame Goldman Sachs or hedge funds for the Euro’s travails. Case in point: Goldman has been accused of financial privateering in Greece. They sold the 2001 currency swap which hid debt and, according to some, turned things bad. They also sold the credit default swaps that enabled hedge funds to profit from Greece’s travails. Talk about a Trojan Horse.

Hang on a minute. Goldman’s 2001 currency swap improved Greece’s Deficit/GDP calculation by 10 basis points. Yet in the same year, Greece failed to add 1.2 billion Euros in military purchases to its deficit numbers. That omission had ten times the impact of the Goldman currency swap according to The Wall Street Journal. I’m not defending Goldman. But blaming Goldman and the hedge funds won’t fix self-destructive behavior. And I have no doubt the E.U. is well aware.

Note to the E.U. Rattling sabers isn’t enough. It’s time, if you’ll pardon my Americana, to speak softly and carry a big stick.

Norb Vonnegut

The Big Short by Michael Lewis is a Must-Read is a post from: ACRIMONEY the Wild Wild World of Wealth

I just watched the 60 Minutes segment on Michael Lewis and his new book, “The Big Short.” He had some terrific sound bites including my favorite about AIG: “…they didn’t know the mistake they were making.” Here’s one reason I’m buying the book.

As a stockbroker, I was wary of all the profit centers. Specialists—traders with deep and sophisticated knowledge of their products—were always gunning for client fees. They didn’t care about suitability. They cared about their P&Ls. Lewis makes a great point about the crisis of 2008: the specialists not only pitched clients, but also their own CEOs who didn’t understand what they were buying. Now, there’s a scary observation. And I want to read more.

On Thursday of this week, I’m discussing “Trust and the Capital Markets” at a conference hosted by NRC Focus in Amsterdam. When I return, I’ll post more of my thoughts about this issue of too many profit centers.

BTW, Amazon’s star ratings for The Big Short are misleading. At the time of this post, over half of the ratings are from people who use 1-star to voice their displeasure at the lack of a Kindle edition.

Norb Vonnegut

Wealth Management: How Can We Trust Anyone When… is a post from: ACRIMONEY the Wild Wild World of Wealth

On Thursday, March 18, I’m speaking in Amsterdam at a conference hosted by NRC Focus. The topic is “trust,” and here’s what the magazine writes:

Trust is essential for markets to function properly. In a ‘high trust society’ like the Netherlands, where people have confidence in both fellow human beings and institutions, this fact is easily overlooked. Financial institutions traditionally have been bastions of trust, both for consumers and businesses. People entrust them their savings and confidence in them. But the recent credit crisis, megafrauds by Bernard Madoff and Allen Stanford and the bankruptcy of banks like Icesave and DSB have put a serious dent in this confidence.

I plan to examine three questions. How can we regain confidence when:

• Havoc is more profitable than fixing problems?
• Employees don’t trust the companies they represent?
• Nobody has the global power to regulate financial institutions?

Send me your thoughts. I’d love to hear what you think is necessary to rebuild trust in the world of private wealth management. Are there any “wealth tools” you’d like to see? Sometime during April, I’ll post my thoughts to these three questions.

Norb Vonnegut