Piñata capitalism

By Jose Ignacio Torreblanca - 24 Feb 10

Aficionado, peccadillo, guerrilla, fiesta, machismo: the list of words that the Spanish language has exported to the English offers food for thought about our national character.

Another word now in vogue is piñata, the term used by James Rickards for the behavior of the financial markets concerning the Greek debt. This is Wall Street's favorite sport, says Rickards, who has watched the play from close up: the whole market gang take whacks at a country or a company until it breaks. In this case, the candies are the commissions pocketed by those who are battering the piñata.

Unlike the so-called casino capitalism of the 1990s, in piñata capitalism elegance takes a backseat to operators whose stock-in-trade is volatility: more market instability, hence more transactions, hence more commissions. And, in the middle: algorithms, computerized automatic purchase-sale orders, and complex financial products such as "synthetic derivatives," which many experts confess in private that they cannot follow. This bank always wins: first, some $300 million in commissions (German banks included) for placing (some say, disguising) the Greek debt in the markets; then, about as much again for betting against it.

True, no one obliged the Greek government to falsify statistics, then go to the markets to finance the debt. Markets and governments, birds of a feather, both seek a quick buck (monetary or electoral) and are loath to accept limitations to their power, or to think of the long term.

Thanks to the euro and the markets, we are all living above our means (not only in Greece and Spain, but in the United States and Britain, whose debt levels are just as high).

But the banks are also living above their means, and cannot handle the risks they generate. It is this dislocation between individual actions and collective consequences that has to be our concern; hence the package of measures proposed by Gordon Brown and Christine Lagarde to curb the excesses of financial capitalism.

Amid the Greek crisis we have forgotten that the origin of the recession lies in these weapons of financial mass destruction which enable your neighbour to buy your fire insurance policy, and then bet against other neighbours on whether or not your house will burn down.

When the crisis began, all the economists called for walloping doses of Keynesianism: open-ended public expenditure to save the banks and stimulate credit and consumption. Then it was the huge volume of bank debt that was about to break the system - now the problem is public debt.

Europe needs to regulate itself better, but it also needs better regulation of the financial markets. Beating the crisis is hard, but we all know how to do it. Hungary has shown that results are produced by cutbacks and reforms - carried out in Hungary by the IMF, and in Greece by the European Commission- but the prescriptions are the same.

The question is whether Europe can combine the powers of its member states to make a whole greater than the sum of its parts.

If we wish to lay the groundwork for prevention of future crises, one wonders why Spain, currently holding the rotating EU presidency, is not taking a more active line. Is the prolongation of the Lisbon strategy for 2020 what our presidential energies really ought to be focused on? What was all the G20 fuss about? Are the EU and the United States going to settle for weathering the storm, just to wait for the next crisis without changing the conditions that have made this one possible?

President Obama has raised this question in the United States, and has shown the road that legislation must take toward proper regulation of the financial sector. Has Europe nothing to say? Would Obama decline to attend a US-EU summit specifically devoted to this question, if the Europeans had anything to say in the matter? jitorreblanca@ecfr.eu

This article was pusblished in El País English edition on 24 February 2010.

( Source: http://ecfr.eu/content/entry/commentary_torreblanca_pinata_capitalism )
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MAX KEISER

talks about the Piñata Capitalism applied in Greece: