Tuesday, 7 December 2010


As my readers should probably know by now (and could probably guess anyway), the Greek government and many of my compatriots spent months blaming evil specuLOLtors for our problems before discovering that deep-seated, decade-old distortions were a little bit closer to the heart of the matter and that the most active speculators in Greek CDS were in fact Greek banks.

For a while, Brussels was keen on this version of events because in what seemed to be a golden age for Euro power-grabbing the popular outrage over evil CDS gave it the right to intervene in yet another lightly regulated market. So it commissioned a report by way of justification. The report, however, prepared in May 2010, found that CDS prices actually reflected fundamentals quite well and that the CDS market was actually often more transparent than bond markets. So the Commission simply buried it.

Having had some experience of EC research bids I immediately assumed that this was a report commissioned from one of the magic circle of monster consultancies (or even the Big Four) that hover around EU tenders like vultures around a battlefield. So I put the EC's embarrassment down to either covert lobbying from the financial industry or over-zealous tendering requirements. [If you ask people to demonstrate in their tenders their ability to provide a thorough and rigorous analysis, you shouldn't be surprised to find that you've bound them contractually to actually perform a thorough and rigorous analysis.]

However, I was wrong. The report was compiled by EC staff, which is why it was so easy to bury in the first place. Technically, the Commission did nothing wrong. Politically, however, they were definitely in the wrong as against the advice of their own staff the Commission decided to appease politicians, blame specuLOLtors regardless, and try to regulate them away. How ironic, given what we now know, is this amazing quote from Commissioner Barnier? 
"These people don't like to come out in the light of day. We are going to flood them with light."
A few months later, Europe knows it is in a worse shape than those specuLOLors dared imagine at the time. It is literally plunged into darkness. The only thing that has finally seen the light, is the Commission's report exonerating the CDS markets.

How do we know all this? Because the Netherlands' Het Financieele Dagblad (Financial Daily) put in a Freedom of Information (FoI) request and obtained the actual report, which can be read here. I'm sure this goes some way towards exonerating the Dutch for their bizarre love of Zwarte Piet

Btw, this episode shows clearly how some journos are vastly better than others. The Telegraph's triumphant coverage of Eurocrats messing up provides no link to its source, merely mentioning that it has 'seen' the report, as though the authors were handed a copy by a man in dark glasses while feeding ducks at Regent's Park and lowly peons couldn't possibly access it. Bloomberg's coverage duly links back to the original Dutch article. The Dagblad links back to the actual report. 

UPDATE: The full report can now be found here

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