Tuesday, May 31, 2011

A Private Sector Diagnosis Of The Global Financial System

I happened to catch a clip of Templeton investment management veteran Mark Mobius this morning on Bloomberg. There's something refreshing about an experienced private sector investor who talks sense without talking his book in detail.

To paraphrase Mobius,

'We haven't seen the last of financial crises. There's going to be higher volatility, more crises. Why?

We haven't solved the things that caused the first crisis.

Are the too-big-to-fail banks even larger than last time? Yes.

Have derivatives been regulated? No.

Are derivatives growing again? Yes.
Meanwhile, Greece is seeing more riots, with this morning's Wall Street Journal stating "default appears more imminent" with a "contagion" to follow.

And more observers of US debt rates are sanguinely noting that the Treasuries market is currently hopelessly queered by the Fed's monetizing Treasury's borrowing. Claiming that global investors aren't worried because rates are still low ignores the fact that the Fed has had a stabilizing bid under the market.

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