Now We Are Talking!

A congrats to the boys at PIMCO, the writing was on the wall, nonetheless, congrats to the boys at PIMCO. Instead of wasting time ringing your Congressperson call up Mr. Gross and Mr. El-Erian and thank them for opening a door. Mr. El-Erain has an excellent MUST READ piece in the FT about Greece writing:

The Greek debt crisis is now morphing into something much broader. No wonder the European Union and the International Monetary Fund are scrambling to regain control of the rapidly deteriorating situation....Markets are now catching up to the reality of over-burdened public finances in the aftermath of the global financial crisis.

Ok, no big news there, that's party line from the world's biggest bond house. But here's the good news, a jubilee so to speak:

Absent some remarkable change in the next few days, things will get even more complex for the official sector. It may have no choice but to combine its own exceptional financing efforts with talks on a controversial approach that will be familiar to veteran emerging market observers – PSI, or “private sector involvement”.

PSI is the polite way to talk about the restructuring of some of the sovereign debt held by the private sector. It is based on a concept of burden-sharing in a disorderly world. It can appeal to governments as a seemingly easy way to ensure that massive public sector support to crisis countries does not flow back out in the form of payments to private creditors. Yet PSI is also hard to design comprehensively, harder to implement well and involves collateral damage and unintended consequences.

I don't mind the more vulgar terms default and debt destruction, but, if we need to say PSI to get the banks and bondholders take losses, let's by all means call it PSI. I agree wholeheartedly with Mr. El-Erian this will be exceedingly hard and it's going to cause a great deal of change, but that is where we are. In the end, it is a small, but most necessary element to a much larger needed discussion about money -- what it is and how it is created.

It places the bad theater that is Congressional financial reform in a whole new and very harsh light. The Reps have obviously accomplished some of what they needed in return for the boatload of money the banks dumped on them over the last few months. While the NYT continues with its propagandist line, which Ive read several times now, that the financial industry written bill "would be the most far-reaching restructuring of the nation’s financial regulatory framework since the aftermath of the Great Depression," which is true, if you leave out the restructuring of the 80s and 90s dismantling the New Deal financial structure, and this bill does little to rectify any of that. But lets not dwell on the negative, Mr. El-Erian in two paragraphs is opening possibilities on a new financial world far more than all elected officials in America combined in the last two years.