The agreement reached on Thursday in the Eurozone sparked a major stock and bond rally in world financial markets. There was a nearly two percent pop across the globe. The agreement basically made each country responsible for every other country's commercial banking system. The next step will be Eurobonds, which makes every country responsible for the sovereign debt of all the other countries -- "joint and several" is the usual phrase.
Nothing, of course, in the agreement reigns in the growth of that sovereign debt or in way repairs commercial bank balance sheets. There is just a new signatory -- Germany. Now, if one looks only at Germany and ignores the rest of the Eurozone, it is clear that Germany itself is on the road to financial ruin, long before taking on the indebtedness of the likes of Greece, Spain, Italy, etc. The main thing that these agreements do is to eliminate any rational reason for the profligate countries to take any measures to curb their budget deficits or fess up about their commercial banking problems.
In American parlance, Europe has adopted the "extend and pretend" model writ large.
This will, briefly, postpone the day of reckoning -- maybe a week, maybe a month, maybe three months...but not much more than that. Then what: Have the man on the moon guarantee Germany's sovereign debt?
To see a defense of this madness, read Laura d'Andrea Tyson's column in the New York Times this morning. It spells out the usual stuff about how austerity doesn't work, which translates to "let the deficits ride to infinity." Tyson is among those that think that laws that prohibit firing don't really matter much to entrepreneurs. It must be nice to look at this from 30,000 feet in a business class seat and to not face the hard realities that Italian and Spanish business folks face every single day. Maybe on a clear day....
As we have pointed out ad nauseum in this blog, the issue in Europe is one of arithmetic. Sovereign deficits are spiraling off to infinity, while the economies, hampered mainly by over regulation and the welfare state (and not austerity...there is none), are grinding to a halt. Having mother Germany step up to the plate is largely irrelevant to where this all ends. It just means that Germany will suffer the same fate as everyone else.
There is no arguing with numbers. Unless the growing gap between spending and revenues is reversed, which, at present, there are no agreements to do, then sovereign debt in the Eurozone will continue to march toward the sky and bond buyers will continue to run for the exits.
Sabtu, 30 Juni 2012
Jumat, 29 Juni 2012
McDonnell Reappoints Dragas
I like Helen Dragas. I know that may sound strange, but I think she is very smart and well intentioned. We all make mistakes. I think her second term will prove out that she can be an outstanding member of the Board of Visitors.
But, you have to wonder about Governor McDonnell. What's he thinking? He announced the appointment as if the opposition to Dragas was gender based, which is completely ridiculous. What McDonnell still refuses to admit, at least publicly, is that he favored the ouster of Sullivan all along. That is the only conceivable explanation for Dragas's reappointment.
I would not worry about the Board of Visitors ganging up on Sullivan. I don't see that happening. I expect Dragas will be very cooperative and the future is likely to be harmonious.
But, you have to wonder about the Governor in all of this. No matter how you tell the story, the Governor's role is likely not to be one that history will look back on with admiration.
But, you have to wonder about Governor McDonnell. What's he thinking? He announced the appointment as if the opposition to Dragas was gender based, which is completely ridiculous. What McDonnell still refuses to admit, at least publicly, is that he favored the ouster of Sullivan all along. That is the only conceivable explanation for Dragas's reappointment.
I would not worry about the Board of Visitors ganging up on Sullivan. I don't see that happening. I expect Dragas will be very cooperative and the future is likely to be harmonious.
But, you have to wonder about the Governor in all of this. No matter how you tell the story, the Governor's role is likely not to be one that history will look back on with admiration.
The Supreme Court
Conservatives are castigating John Roberts for joining with four liberals to provide a path to constitutionality for Obamacare. Why pick on him? When Republicans are in political control, they do exactly the same thing.
Ever hear of "Americans for Disability Act," "The Prescription Drug Bill," "No Child Left Behind," etc. These are Republican initiatives passed by Republicans. Who were the biggest critics of Sarah Palin after she was the Republican nominee for VP? Karl Rove and Peggy Noonan -- two Republicans. What was her crime? She didn't read the NY Times and thought Russsia was across the Bering Straights (which it is).
Who coined the phrase "voodoo economics" to describe the Reagan tax cut plan? A conservative Republican, that's who. What Governor recently followed the advice of four liberal Democrats, against the advice of conservatives, to try to destabilize the University of Virginia? A conservative Republican that's who.
So, why pick on Roberts? Other than Scott Walker, Mitch Daniels, and Chris Christie, what other Republicans have made any effort at all to roll back the reach of government when they had the chance?
Republicans are only for limiting the reach of government, when they are out of office trying to get in. Once in, they behave like Democrats. So don't pick on Roberts, he's just following tradition. Isn't that what Supreme Court justices are supposed to do?
Ever hear of "Americans for Disability Act," "The Prescription Drug Bill," "No Child Left Behind," etc. These are Republican initiatives passed by Republicans. Who were the biggest critics of Sarah Palin after she was the Republican nominee for VP? Karl Rove and Peggy Noonan -- two Republicans. What was her crime? She didn't read the NY Times and thought Russsia was across the Bering Straights (which it is).
Who coined the phrase "voodoo economics" to describe the Reagan tax cut plan? A conservative Republican, that's who. What Governor recently followed the advice of four liberal Democrats, against the advice of conservatives, to try to destabilize the University of Virginia? A conservative Republican that's who.
So, why pick on Roberts? Other than Scott Walker, Mitch Daniels, and Chris Christie, what other Republicans have made any effort at all to roll back the reach of government when they had the chance?
Republicans are only for limiting the reach of government, when they are out of office trying to get in. Once in, they behave like Democrats. So don't pick on Roberts, he's just following tradition. Isn't that what Supreme Court justices are supposed to do?
Germany Slowly Getting Pulled In
What was a disastrous future for the southern periphery of Europe is now being extended to the northern states as well. Germany is the main target of this exercise. Today's agreement to accept near worthless bank equity by the European banking stabilization fund is an admission of hopelessness.
No one yet is reducing the yawning deficits or recapitalizing the insolvent banks that plague Europe. That's off the table for now. So, European debt continues to explode off to infinity while the paper-shuffling politicians rearrange the names of the guarantors. In the end, it won't matter. Germany will suffer the same fate as Greece and for the same reason. They can't pay their bills.
The problem in Europe is one of solvency, not one of liquidity. These patch jobs only make the final outcome much more severe than it would be if the real problems were faced with candor.
No one yet is reducing the yawning deficits or recapitalizing the insolvent banks that plague Europe. That's off the table for now. So, European debt continues to explode off to infinity while the paper-shuffling politicians rearrange the names of the guarantors. In the end, it won't matter. Germany will suffer the same fate as Greece and for the same reason. They can't pay their bills.
The problem in Europe is one of solvency, not one of liquidity. These patch jobs only make the final outcome much more severe than it would be if the real problems were faced with candor.
Rabu, 27 Juni 2012
Mostly Winners -- Two Losers
Now that the UVA crisis has passed it is easy to see that the ultimate outcome created winning positions for mostly everyone involved. Even Rector Helen Dragas emerged with strength and character in bowing to the inevitable return of President Teresa Sullivan. It is unfortunate that Mark Kington and Peter Kiernan remain on the outside looking in. Both Kington and Kiernan are outstanding alums and their contributions to the University in the past merit returning these two to positions of respect at their alma mater. I for one hope to see both Kington and Kiernan playing a major role at the University in the years ahead, as they have in the past.
There are a lot of messages in what has transpired in the past two weeks, but reflect for a moment on why the groundswell of support for Sullivan was so overwhelming. Sullivan did the little things well. She was kind and friendly. She sought out all parts of the University community. She expressed interest in everything that we do. These things count. It was difficult to see her ouster as warranted and to see the process as fair. Underneath it all, the personality and humility of Terry Sullivan were her best weapons. She disarmed the community and her opponents with her affable style.
One major loser was the Governor. He did nothing to stop this process and more than one insider openly mentioned the Governor as a major mover in the effort to unseat Sullivan. Insiders are well aware of the Governor's true, as opposed to stated, role in all of this and, in due time, the public will know as well.
Another major loser was the Wall Street Journal, whose editorial "Virginia Fracas" contains more inaccuracies per paragraph than anything I've ever read. Moreover, the overriding theme of the editorial is totally inaccurate -- that this was a battle between reform and anti-reform. Nothing could be further from the truth. Today's WSJ article is similarly misleading for readers unencumbered with the facts. The WSJ has embarrassed itself with its coverage of the Sullivan crisis and makes one wonder about its coverage of other issues.
Hopefully true reform, as opposed to rearranging deck chairs, can come to the University now that this drama has ended.
There are a lot of messages in what has transpired in the past two weeks, but reflect for a moment on why the groundswell of support for Sullivan was so overwhelming. Sullivan did the little things well. She was kind and friendly. She sought out all parts of the University community. She expressed interest in everything that we do. These things count. It was difficult to see her ouster as warranted and to see the process as fair. Underneath it all, the personality and humility of Terry Sullivan were her best weapons. She disarmed the community and her opponents with her affable style.
One major loser was the Governor. He did nothing to stop this process and more than one insider openly mentioned the Governor as a major mover in the effort to unseat Sullivan. Insiders are well aware of the Governor's true, as opposed to stated, role in all of this and, in due time, the public will know as well.
Another major loser was the Wall Street Journal, whose editorial "Virginia Fracas" contains more inaccuracies per paragraph than anything I've ever read. Moreover, the overriding theme of the editorial is totally inaccurate -- that this was a battle between reform and anti-reform. Nothing could be further from the truth. Today's WSJ article is similarly misleading for readers unencumbered with the facts. The WSJ has embarrassed itself with its coverage of the Sullivan crisis and makes one wonder about its coverage of other issues.
Hopefully true reform, as opposed to rearranging deck chairs, can come to the University now that this drama has ended.
Selasa, 26 Juni 2012
Harmony at UVA
The UVA Board of Visitors voted today 15-0 to return Teresa Sullivan to her post as President of the University. In a gesture of unity, the Board conducted a 15-0 vote of confidence for the Rector, Helen Dragas. Truly!
These are welcome actions and hopefully now the University can address the real issues that seemed to divide the President and the Board that, heretofore, had never surfaced at a Board meeting. It is time to talk about these things in the open and begin a much needed move to reform an ossified, bureaucratic institution, that is in much need of reform.
UVA, like other major American Universities, faces an uncertain future because, while costs have gone through the roof, the quality of education provided has stagnated. It is time to face these problems squarely and not pretend that all is well in academia. All is not well.
The UVA Board has corrected an egregious error and should be commended. Removing a sitting President, without so much as a meeting or a vote or even a discussion at a board meeting, could never provide the Sullivan removal with even a bare minimum figleaf of legitimacy.
Board member Hunter Craig was the real hero, fighting tirelessly to get the votes necessary to call a meeting to reconsider and then to follow up and ultimately create the conditions that would lead to a unanimous board vote to return Sullivan to her post. Together with Heywood Fralin, Craig's leadership has rescued UVA from the brink.
All in all...a good day for UVA!
These are welcome actions and hopefully now the University can address the real issues that seemed to divide the President and the Board that, heretofore, had never surfaced at a Board meeting. It is time to talk about these things in the open and begin a much needed move to reform an ossified, bureaucratic institution, that is in much need of reform.
UVA, like other major American Universities, faces an uncertain future because, while costs have gone through the roof, the quality of education provided has stagnated. It is time to face these problems squarely and not pretend that all is well in academia. All is not well.
The UVA Board has corrected an egregious error and should be commended. Removing a sitting President, without so much as a meeting or a vote or even a discussion at a board meeting, could never provide the Sullivan removal with even a bare minimum figleaf of legitimacy.
Board member Hunter Craig was the real hero, fighting tirelessly to get the votes necessary to call a meeting to reconsider and then to follow up and ultimately create the conditions that would lead to a unanimous board vote to return Sullivan to her post. Together with Heywood Fralin, Craig's leadership has rescued UVA from the brink.
All in all...a good day for UVA!
Strangled by Regulation
The American economy isn't going anywhere. Even a Supreme Court decision against the Obamacare mandate can't fix the absence of commercial and residential lending mandated by Dodd-Frank. American business is strangling under the heavy boot of government. Hiring is simply irrational given the political and regulatory environment.
The energy industry will do well and there will be technology shows of strength, but the broader economy is weighted down by regulatory red tape and bureaucratic mistrust of free enterprise. All of this bodes ill for the prospects of those seeking employment. All the rhetoric about inequality and taxing the rich simply reinforce all of the reasons why business has no interest in adding jobs.
Unless and until the political environment changes in the direction of free enterprise, the American economy will remain on its present course, sputtering along with no real sense of direction.
The energy industry will do well and there will be technology shows of strength, but the broader economy is weighted down by regulatory red tape and bureaucratic mistrust of free enterprise. All of this bodes ill for the prospects of those seeking employment. All the rhetoric about inequality and taxing the rich simply reinforce all of the reasons why business has no interest in adding jobs.
Unless and until the political environment changes in the direction of free enterprise, the American economy will remain on its present course, sputtering along with no real sense of direction.
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