Explaining Southern California's economy

Quote of the Week: Greek debt crisis edition

Greece Faces Economic Collapse As Parties Dispute EU Finance Package

Vladimir Rys/Getty Images

He might not be worried about Greece's recent default and payout of credit default swaps. But some other people are.

I just discovered Tony Alfidi's blog and have been enjoying his uncensored views on a variety of tech and finance subjects. I agreed with him on Apple's mastery of planned obsolescence and now I'm tempted to agree with his verdict on credit default swaps (CDS) — a number of which just kicked in as Greece "defaulted" on some of its privately held sovereign dealt. 

Some people think that CDS, despite their role in the financial crisis (they brought down AIG), remain useful, as a means of hedging risk and as a relatively recent example of financial innovation that was sadly misused. 

Alfidi says un-uh:

I've always believed that credit default swaps are meaningless and even dangerous. [There's your Quote of the Week!] Banks and hedge funds use them to place directional bets with no regard for a counterparty's solvency. The European versions of AIG, whoever they are, can now breathe easier for a few weeks knowing they can get away with more uncapitalized CDS writing.

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Michael Lewis on too-big-to-fail banks: Kick out the kids and break 'em up!

Check out the above video, one of the series, of Michael Lewis in conversation with Jacob Weisberg of the Slate Group. It's a quickie but a goodie. Lewis covers a lot of ground. The young guns of Wall Street shouldn't have been getting paid $2 million! Credit default swaps (a) shouldn't have been invented — "innovation" in finance is not necessarily a good thing — and (b) were bound to lead to people betting against the securities, mainy home mortgages, they were based on.

But things really get interesting when Lewis starts sounding exactly like L. Randall Wray, an increasingly prominent economist from the University of Missouri, Kansas City, and a proponent of an increasingly popular new school of economics thinking called "Modern Monetary Theory" (some call it Neo-Chartalism). Wray also says the big banks need to be broken up. I've embedded a video below in which he discusses this idea. He's not exactly Michael Lewis. But the message is quite similar.

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