What a week! Two of the more interesting stories were Jon Corzine accidentally misplacing $1.2 billion and the escalation of the Euro crisis.
First, let’s talk about Corzine. This guy has been a Wall Street CEO (twice), a U.S. Senator, and a governor – isn’t that the trifecta of EVIL? He did not accidentally lose any money, but rather made terrible bets on European debt and blew it. When he first became CEO of MF Global in 2010, he said that the company would take big risks. Yes, but who could have imagined that his bets would have been so incredibly stupid. As Leno said, we now know what the “MF” stands for and to whom it refers. He may end up being part 2 of the Bernie Madoff scandal.
The Europeans have a mess on their hands that, at first glance, makes the U.S. look almost well managed by comparison. Due to having too many spending programs and too little financial maturity, several of Europe’s major countries and large banks are on the verge of default. As in the U.S., the central bank believes that the best course for resolving too much debt is to add on more debt. That papers over the problem in the short-term, but makes it much worse over time (when, presumably, other politicians will be in office and will have to take the heat). Broke zombie banks and insolvent governments don’t exactly bode well for the long term. This is why Standard & Poor’s is threatening to downgrade ratings of 15 Euro-zone countries – something that they should have done long ago.
On this side of the Atlantic, the banks and government are shacked up just as tightly. The U.S. politicians don’t have to react quite as urgently to our own debt problems, as we have the luxury of printing our own money for just one country. Naturally, this doesn’t stop arrogant U.S. bureaucrats like Treasury Secretary Geithner from making multiple trips to Europe to lecture them, nor prevent the administration and Congress from accusing Europe of inflicting pain on our economy and stock market.
As a trust deed buyer, I can only guess on when this money printing model falls apart, but am sure that we will find out soon enough. A trust deed buyer is a company or individual that buys mortgage notes and trust deeds, so knowing what will happen to real estate prices and interest rates is of more than a passing interest to us.
Both the U.S. and Europe need to grow their economies and shrink their public debts. They cannot grow GDP because business still lacks confidence, leading to continued high unemployment and more need for expensive programs to take care of the newly indigent. Neither region can drastically reduce debts, as that would mean imposing austerity measures on a population accustomed to getting lots of free stuff. Seem to be quite a pickle that we’ve put ourselves in.