Credit Default Swaps, Free Markets, Canaries, and Ostriches
Greece today, Portugal, Spain, and Italy presently. Europe is close to the edge. And we know this how? There is a canary in the coal mine known as the credit default swap (CDS). As anyone who reads the financial press knows, CDS’s were created by the devil to help corrupt pseudo-capitalists steal from honest, hardworking capitalists. They amount to cynical bets that honorable capitalists and socially responsible governments will default on their financial obligations. Many famous pundits and politicians write books extolling the virtues of capitalism, yet at every opportunity they trash actual free markets that deliver bad news.
The CDS marketplace is barely free and transparent. Only insiders get to trade in it. Yet even with all the restrictions, the poor little CDS canary is singing its mournful dirge If only we could shoot the damn canary, the problems would all go away. Investors would be lining up to lend money to the PIGS (four nations) which cannot possibly keep all the promises they have made to their citizens. But the canary’s song is of default and economic chaos. The ostriches who mold public opinion blame the messengers as they always do.
The good ol’ USA stands ready to bail out Europe. The proposed financial reform act has some good ideas in it, but as a whole, it appears designed to move Wall Street to Shanghai. I propose an amendment. Starting in 2020, the official language of the United States should be Chinese. And the official language of Europe? Why, Arabic, of course.