"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008

Monday, May 10, 2010

Really great links - Greece - Crash

Arvind Subramanian - Greece - Bailout programme - "Early satisfaction with the programme has given way to serious market doubts about it. These doubts are rational because the fiscal arithmetic simply does not work. For the IMF, this programme represents a squandered opportunity because it could have been ahead of events and designed a much better programme, specifically by facilitating orderly debt restructuring. Instead, we could end up with a programme that is inequitable, perverse and unsuccessful, with much greater costs all around.
        When the Greece saga began, the mantra of the German government and many purists in Europe, including the European Central Bank, was: “no default, no bail-out, no exit”. European private-sector holders of Greek debt would be spared any pain (no default). The European taxpayer would be protected (no bail-out). And European companies would be shielded because Greece could not devalue its currency (no exit). That left one and only one policy measure that could be brought to bear on the problem, namely a fiscal austerity programme, with the average Greek citizen bearing all the burden of adjustment. Europe, in short, had defined this to be an exclusively Greek problem."

Streetwise Professor - Crash - "NASDAQ has decided to cancel–bust–trades made between 2:40 and 3:00 PM ET if they were at prices more than 60 percent away from the market price prior to 2:40.
        Very bad idea.
        The orders executed at these prices were almost certainly stop orders. Old fashioned stop orders. The kind that have been destabilizing for years, not some newfangled HFT thing. When stops are hit, they reinforce the price movement that triggered them.
        Busting these trades therefore encourages the use of a particularly destabilizing type of order. If the idea is to reduce the amount of positive feedback in the system, this will have the exact opposite effect."

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