Not surprisingly, the views of one of just two or three lawyers present raised a few eyebrows as lawyers always do. The interesting thing about a "bankruptcy" such as Greece, he stated, is that the creditors lost money unlike creditors in a domestic bankruptcy. Well, yes, was the response, except in situations like GM when everybody lost everything except the labor unions for which the entire package was designed, so what's the point? Clearly, the responder was hard-put about something.
Well, said the lawyer, what we really need is some sort of rules as to how to proceed in a sovereign default as the European governments really had no experience in something like Greece. That raised a few more eyebrows for as back as 1982, European banks, half of which were mere extensions of their governments…a situation that lasts through today…had a pretty up-close and personal look at Mexico and a few other places in regard to the question of sovereign bankruptcy. But he had a point be it the wrong one. I think what he was trying to point out was that the EU…to refer to it by its proper name…is a hodge-poge of countries, each with its own outlook and set of problems and approaches to solutions which guarantees the near-impossibility of a united approach to problem solving. There was general agreement that wasn't going to change. And so, all agreed that the politics was probably more important than the finances and THAT wasn't going to change anytime soon, anywhere.
I was somewhat mystified at how little of the discussion was devoted to the differences between the causes of the crises over the past 30 years than I thought might have been the case. 1982 was considerably different from 2007 and yet both will be deemed a banking crisis. 2007 was a crisis of credit extention…too much…while 2007 was a collapse in the pricing of assets--or so went the argument. It is valid, but to try to explain the differences to the "great unwashed," as one of the participant used to refer to the general public, is hard. Consequently, the simplest explanations were manufactured by politically-charged groups resulting in political fixes that, while not overtly stated, were not the less admitted to be less that reformative to the process and extremely difficult to implement..e.g. Dodd/Frank. Like Europe, the process Over Here has become politically dominated especially in regard to legislation designed to prevent a recurrence. No one, and I mean, NO ONE had any illusions about Too Big to Fail being a thing of the past and NO ONE had a clue as to how a "living will" could be implemented.
One of the old bankers present who has gone on to bigger and better things said to me, "you know, in my position I have an opportunity to look at some of the stuff that some of these hedggie guys are investing in overseas. I wouldn't touch this stuff with a stick, but it's all yield, yield, yield." Hasn't changed much, I suggested and the answer was it has gotten worse because none of these firms have any institutional memory. Yet, no one believes that when the music stops there will not be a chair for them, because they are smart enough and agile enough to get out first. Which leads me to one identifiable comment because it is so important. Gerry Corrigan, former President of the N.Y, Fed and one of the smartest guys in the room quietly, which is not his style, simply suggested that as much as we talk about it we have never been able to identify an asset bubble until after the fact and we are no better at it today than any time in the past. Brother Checki quietly, which is his style, finished the afternoon by observing that what we had been discussing remains very much in place today except that there is one overriding factor that dominates all conversations. Technology. Whatever may happen today happens in an instant. There is no time for prevention. An institution's liquidity can disappear in a brief moment and the funding of our institutions is not on much more stable ground than it was 30 years ago. I would argue that it is worse.
In all, this was a troublesome meeting. What have we learned? A great deal. What have we changed? Not a great deal at all. Can it happen again? Certainly. Will it? Probably. But hell, I'm going to see the triplets tomorrow. The future is looking good.
A current note: everybody figured out today that the jobs number stank and the economy is lousy. I'll write when I get work…like Wednesday.
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