THURSDAY MARCH 11, 2010

They're Back...Again...Evil Speculators!

The problems of Greece have been well documented.  Debt levels that are beyond what any reasonable person would say are prudent, outrageous labor contracts and ferocious, unsustainable government spending and a stagnant economy all put Greece in financial dire straights.  But according to the political class, that is not what caused the problem, it was those evil speculators!

According to the Prime Minister of Greece, the Chancellor of Germany, an assortment of EU officials and now even President Obama, the cause of Greece's problems were evil bankers whose speculation on Greece government bonds forced Greek interest rates higher.  Credit default swaps caused the problems.  There is no doubt that higher interest rates brought this Greek drama (or maybe tragedy) to a head.  The Greek government had its hand forced and has now issued an austerity budget that looks to cut spending.  One of the austerity measure was to increase the retirement age for pension eligibility for government workers from 60 to...gasp...62!  Of course, those who feed at the government trough quickly took to the streets in protest.  There was a country wide strike to protest this outrageous change in their gold plated retirement package.  Are we to believe that this measure, or any other substantive measure to cut spending, would have been taken if the evil speculators did not force the matter?  I highly doubt it.

Interestingly, none of these politicians were complaining when Greece, along with several other European Union countries, utilized the very same derivatives and credit default swaps to massage their financial status in order to qualify for membership in the Euro.  Those evil bankers weren't speculators then, just wise financial advisors.  You can't have it both ways.  I don't know when Larry Summers made the statement above, but presumably he was referring to the Greeks of Homer and Aristotle, not todays!

By the way, the Greek play may be a preview of things to come in the United States.  The dire fiscal situation in California, New York and New Jersey bears a remarkable similarity to Greece.  Even the U.S. government may become a target of these evil speculators, or bond vigilantes as they were called in the early 1980's.  Of course, when it happens, it won't be the fault of the profligate state and federal governments, it will be the evil speculators.  Bond buyers beware!  

POSTED AT 1899-12-30 11:06:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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