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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Haim R. Branisteanu who wrote (111087)	4/28/2010 8:08:11 PM
From: Hawkmoon	4 Recommendations Read Replies (1) of 116555

If one compares the situation in many US states to the situation within the PIIGS it will find that the US States ARE in bigger troubles on an absolute basis gobbling the various budget deficits pension benefits to state employees and healthcare etc. Haim, There's little doubt that many US states are facing serious financial issues. HOWEVER, the difference is that those states are part of a Federation (the US), whereas Greece is part of a CONFEDERATION where monetary policy is formulated on the consensus of 20 different Central Bankers and governments. The jingoistic nature of European politics makes the PIIGS far more vulnerable to speculation by shorts and CDS holders. Personally, I've said that CDS speculation is a financial WMD, and it's certainly the case with regard to European Sovereign debt. I don't like them and I certainly don't believe such contracts should be permitted by those lacking an insurable interest. History gives us a prime example why such "naked" CDS contracts are not economically productive. In fact, they are DESTRUCTIVE and actually provide motivation to destroy the insured goods or financial instrument. They learned this back in the 1700's when people speculated on cargoes and actually conspired to sink ships so they could collect insurance on cargoes where they had no insurable interest: The analogy refers to something called the principle of insurable interest, or the requirement that those taking out insurance must have exposure to either a gain or loss, particularly a loss, on the subject of the insurance. England in the 1700s recognized the danger inherent in taking out insurance on property. As CFTC Chairman Gary Gensler remarked last week: “English insurance underwriters in the 1700s often sold insurance on ships to individuals who did not own the vessels or their cargo. The practice was said to create an incentive to buy protection and then seek to destroy the insured property. It should come as no surprise that seaworthy ships began sinking.” And so Parliament responded with the Marine Insurance Acts of the mid-1700s. blogs.wsj.com Guide the future by the past.. long ago the mold was cast.. Hawk

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