I must admit to having missed most of the fun on Tuesday, if fun is what was had on yet another “Will they or won’t they and if they do, when will they do it” day for Greece and the rest of Europe.
I missed it because I had the sad duty to attend the funeral of a friend, a great man and a pillar of the old City. The turnout was staggering and the humour, in as much as there was any, ran along the lines of: “Is there anyone at all left in the office to trade or have they closed down the floor of the Stock Exchange?” Nearly, maybe, but not quite.
The day was, however, not entirely wasted as it saw the creditor institutions (which used to be called the Troika but which are, at the behest of Athens, no longer allowed to be called the Troika but the “creditor institutions” – for those recently arrived back from Mars, we’re talking the EU, the ECB and the IMF) find common ground on a formula which they are set to offer up to the Greeks.
I shall disagree with the media this morning who were talking of an impending resolution of the Greek debt crisis. The crisis, irrespective, will not be resolved; have we not learnt that kicking the famous can down the even more famous road should never be mistaken for a solution.
Alas, Prime Minister Tsipras is apparently working on his own counterproposal which will no doubt somewhere include the observation that, seeing as that the Greek people have so recently democratically voted to continue living beyond their means, it would be an outrage for those whose money they are spending to suggest a more considered use of the funds and an scandalous audacity for them to propose any possible methods of raising money towards repayment.
One highly seasoned market chum of mine, Ian McBride of Tullett Prebon, shrugged with resignation when he wrote to me in the morning:
“…they have apparently made good progress on increasing VAT… But that’s a joke, as the economy is so BLACK at the moment … that if they up VAT, they will collect even less as folks go to cash and barter to avoid it. So the net sum gain is zero … potentially negative for Govt revenues. It’s a mess that even if they agree to 70% of some sort of the austerity measures… they won’t be able to stick to anything for more than a short period of time… they will need to go to the public to get a new mandate to accept some of the demands… and they are unlikely to do that… but I see no long term prospects of a solution until either the Troika agrees to big debt haircuts, or Greece leaves… take your pick. Will a new aid extension plan be hatched by June 30th when the current one expires? Maybe…. but all I’m sure of is that they can’t stick to any austerity program, even if they want to!”
Who’s to disagree?
On Sepp
Mid-afternoon we heard the news that Sepp Blatter had finally announced that he will step down as head of FIFA and I was immediately asked by all and sundry whether I would be writing on it today. Broadly, I have tried to avoid looking for parallels between the scandals in football and the scandals in the markets. I shall merely limit myself to the observation that they are both subject to the old rule that although money doesn’t smell, too much money stinks.
ICAP’s cap
On a very different front, The Wall Street Journal reports that ICAP, the inter-dealer broker, is considering halting trading if US Treasury bond prices move too far and too fast. This would be an equivalent to the circuit breakers which many stock exchanges implement. Whether and how a single broker can help contain the market alone isn’t explained by ICAP but the very idea reflects fears for the liquidity of what is supposed to be the world’s most liquid asset class in the event of crisis.
It barely needs to be said that if Treasuries need circuit breakers in order to prevent them from gapping into air pockets of illiquidity, something out there has gone very, very wrong.
I dined last night with a senior City lawyer who, despite being largely retired, still sits on one fairly weighty regulatory commission. We spoke – while testing and tasting dry martinis, the original purpose of our get-together – of the issue of rule-based and principle-based regulation. I have always been a great fan of principle-based systems where practitioners lead the way and regulators whistle them back if they overstep. Rule based, in my thinking, has under-resourced regulators persistently in pursuit of practitioners who take it is read that if something isn’t strictly forbidden, it must be permitted.
Markets might get it wrong from time to time but on the whole they get it right. Trying to perfectly legislate against the relatively few occurrences of it going wrong, even if it goes wrong “big time” as it did in the first decade of this century, has achieved nothing than to upset the markets’ equilibrium during the overwhelming periods when things ought to be right.
ICAP’s proposed course of action clearly shows that bonds markets are now disrupted down to the core. I’d love to simply put this down to being the result of the law of unintended consequences.
However, when I leaf through some of the regulators’ working papers which hit my desk, I’m not so sure about the consequences being quite so unintended. What the cost is, on the other hand, to the interests of those who are supposed to be protected by the regulation, is a different matter and one which is rarely highlighted. ICAP has, tacitly and very elegantly, done just that.
