Ezra Klein interviews Elizabeth Warren- who chaired Congressional oversight panel on TARP and who is now running for the Senate in Massachusetts.

EK: I agree that complexity is where lobbyists and lawyers work their dark magic. But when I talk to people in the industry about this, they say that simple rules sound great, but they’re not really possible. It’s hard to distinguish a hedge from a bet, or a speculative trade from a legitimate one. The world is complex, and that’s why regulators and politicians who don’t like Wall Street and don’t like being browbeaten by lobbyists end up allowing complex rules, too.

EW: Here’s another way to look at what you just described: That’s the strongest argument for a modern Glass-Steagall. Glass-Steagall said in effect that hedge funds should be separated from commercial banking. If a big institution wants to go out and play in the market, that’s fine. But it doesn’t get the backup of the federal government. If it’s too complicated to implement the Volcker rule, do you say we give up and let the largest financial institutions do what they want? Or do you say maybe that’s the reason we need a modern Glass-Steagall?

EK: Do you support a modernized Glass-Steagall law?

EW: Yeah! I’ve talked with Sen. Maria Cantwell from Washington State. She’s been working on that, and I think the debate should be on the table.

via Elizabeth Warren: ‘That’s the strongest argument for a modern Glass-Steagall’ – The Washington Post.

The euro currency is a malady that condemns at least a generation of Greeks, Italians, Spaniards, Portuguese and Irish to the economic infirmary.

In these nations, unemployment rates are now at their highest levels in recent decades, and there are few prospects for recovery in sight. The economists and politicians who created the system still proclaim it can survive. Their time would be better spent recognizing they made a bad mistake and preparing for an orderly dismantling of the euro before the damage spreads and further undermines European unity.

The problem isn’t just the region’s lack of competitiveness or its budget deficits or the high stock of existing government debt, which the International Monetary Fund now puts at 90 percent of the euro area’s gross domestic product (see Table 5 in this report). It is all of the above, compounded by five years of complete political denial.

For three years, capital has been fleeing Europe’s periphery for Germany.

via As European Austerity Ends, So Could the Euro – Bloomberg.

Reposted from Bruce Krasting’s blog with his permission.

The 1st Q reserve numbers for the Swiss National Bank tell an interesting story. For a second quarter in a row, the foreign reserves have declined.

There is only one way that this could have happened; the SNB offloaded a portion of the EURCHF position it took on back in September of 2011 when it was forced to intervene.

A significant portion of the CHF 60B ($67B) “reverse intervention” was the result of the unwinding of large speculative short EURCHF positions by market players. (This demonstrates how big the speculative capital flows were.)

Some additional EURCHF sales by the SNB were, no doubt, accomplished when the market was betting that the SNB would raise the Peg from 1.20 to 1.30 or higher.

Officials at the SNB did everything they could to encourage speculation that the Peg might be raised. I find it amusing that while those officials were talking the EURCHF higher, they were actually selling on the side. Basically they lied. For an interesting perspective on this: Link
Just a few weeks ago a big shot at Goldman was selling the idea that the SNB would raise the Peg to 1.35. Maybe some of the SNB’s“chatter” rubbed off on O’Neill.

At this point the EURCHF is truly pegged. If it goes higher, the SNB will take the opportunity to offload more of its unwanted Euros. The flip-side is also true, having reduced its reserves by 20% over six months, the SNB has tons of ammunition to fight off a speculative attack. It’s as if the Swiss have joined the Euro at a fixed exchange rate.

If the political issue of actually getting married to the EU/Euro were on the ballot, the Swiss would vote 10 to 1 against it. But when it comes to creating a currency advantage, the Swiss look the other way.

If the discussion ever came up about what exchange rate the EURCHF should be permanently fixed at, it would be at a rate much closer to 1.00 then 1.20. The Swiss politicians understand that; so do the folks at the SNB.  Most of the population understands it as well. In the meantime they reap the benefits.

What do you get if you have a currency whose value is manipulated? These two headlines answer that question:

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