Quantum Pranx


Archive for May 10th, 2010

More panic attacks are certain to occur

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by Rick Ackerman
Originally posted May 10, 2010

SO, WAS IT THINKING MACHINES THAT PUT STOCKS INTO A DEATH DIVE last week, or was it primal human fear? Either way, there’s a neurological disease at work and therefore little likelihood of a cure. Even worse, since these diseases tend to be degenerative, we should expect something still more disruptive in the future. Ham-handed regulations won’t be able to stop it, either. Let the exchanges install all the circuit breakers they want; supply will out someday, catastrophically overwhelming demand when buyers go AWOL. This is inevitable when you create a global electronic trading network connecting ten billion ganglions that at any given moment can channel the sum of all fears.

Thus enabled, the stock market is like a vast nervous system lacking a brain — kind of like Los Angeles, with mayhem always lurking just below the surface. Last week, for a few minutes, some large clusters of ganglions in the trading network got overstimulated, resulting in a five-alarm panic whose cause has so far defied forensic explanation. The sleuths should save their breath: It was an anxiety attack. Humans have them all the time. We once knew a guy who started having panic attacks whenever he dined in a restaurant 50 miles or more from home. If you’ve ever felt your scalp crawl, this is the sensation the guy said swept over his entire body, paralyzing him with a wave of cold fear.

Heal Thyself
He put himself through an endless battery of neurological tests, including an EEG, a brain scan, and all the rest. The results came back negative, but he kept having the attacks. Still more tests revealed nothing of medical interest. Finally, physically and psychologically depleted after being poked and prodded for months, having epileptic seizures induced by tormentors in white coats, and being treated like a lab rat for too long, he decided that the attacks were all in his head. He resolved to stop them by reassuring himself whenever he dined out that there was nothing wrong with his brain or nervous system. It worked. The attacks ceased, never to return.

Far less sanguine are we about Wall Street’s ability to heal itself; for, to believe the stock market capable of calming its own nerves is to believe the Frankenstein monster, with his diseased brain, can be made docile with herbal tea and Rosary beads. Not only will an accident such as we witnessed last Thursday happen again, it is bound to recur with sufficient violence to close the markets for more than a mere day or two. That is because it is not just New York and Chicago trading exchanges that have been imbued technologically with the ability to magnify panic a million-fold, but the entire global financial system. This problem cannot be fixed by regulatory tinkering at the margin because it is a disease now embedded in the financial system’s DNA.

Europe prepares nuclear response to save monetary union

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by Ambrose Evans-Pritchard
Published 09 May 2010

ARE EUROPE’S LEADERS GRASPING THE NETTLE AT LAST? FACED WITH THE IMMINENT DISINTEGRATION of monetary union, they appear poised to create the beginnings of an EU debt union and authorize the European Central Bank to step in immediately to stabilize the eurozone bond markets.

Masked protesters stand outside the Greek Parliament in Athens on Sunday

“It is an absolute general mobilization: we have decided to give the eurozone a veritable economic government,” said French president Nicolas Sarkozy, once again basking as Europe’s action man. “Today we have an attack on the whole of the eurozone. This is a systemic crisis: the response must be systemic. When the markets open on Monday morning we will be ready to defend the euro.”

Great caution is in order. German Chancellor Angela Merkel has so far said little. The descriptions of the deal agreed by EU leaders in the early hours of Saturday are coming from the French bloc and EU bureaucrats. How many times during the Greek saga of the last four months have we heard claims from Brussels that turned out to be a distortion of what Germany had actually agreed, causing each relief rally to falter within days? They had better get it right this time.

But if the early reports are near true, the accord profoundly alters the character of the European Union. The walls of fiscal and economic sovereignty are being breached. The creation of an EU rescue mechanism with powers to issue bonds with Europe’s AAA rating to help eurozone states in trouble –apparently €60bn, with a separate facility that may be able to lever up to €600bn – is to go far beyond the Lisbon Treaty. This new agency is an EU Treasury in all but name, managing an EU fiscal union where liabilities become shared. A European state is being created before our eyes.

No EMU country will be allowed to default, whatever the moral hazard. Mrs Merkel seems to have bowed to extreme pressure as contagion spread to Portugal, Ireland, and – the two clinchers – Spain and Italy. “We have a serious situation, not just in one country but in several,” she said.

The euro’s founding fathers have for now won their strategic bet that monetary union would one day force EU states to create the machinery needed to make it work, or put another way that Germany would go along rather than squander its half-century investment in Europe’s power-war order.

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