The Destructive [or is it Constructive] Power of the Financial Markets

From Der Spiegel:

The enemy looks friendly and unpretentious. With his scuffed shoes and thinning gray hair, John Taylor resembles an elderly sociology professor. Books line the dark, floor-to-ceiling wooden shelves in his office in Manhattan, alongside a bust of Theodore Roosevelt and an antique telescope.

Taylor is the chairman and CEO of FX Concepts, a hedge fund that specializes in currency speculation. It’s the largest hedge fund of its kind worldwide, which is why Taylor is held partly responsible for the crash of the euro. Critics accuse Taylor and others like him of having exacerbated the government crisis in Greece and accelerated the collapse in Ireland.

People like Taylor are “like a pack of wolves” that seeks to tear entire countries to pieces, said Swedish Finance Minister Anders Borg. For that reason, they should be fought “without mercy,” French President Nicolas Sarkozy raged. Andrew Cuomo, the former attorney general and current governor of New York, once likened short-sellers to “looters after a hurricane.”

The German tabloid newspaper Bild sharply criticized Taylor on its website, writing: “This man is betting against the euro.” If that is what he is doing, he is certainly successful. While Greece is threatened with bankruptcy, Taylor is listed among the world’s 25 highest-paid hedge fund managers.

A well-read man, Taylor likes to philosophize about the Congress of Vienna and the Treaties of Rome. But is this man really out to speculate the euro to death? And does he have Greece on his conscience?

Taylor grimaces and sighs. He was expecting these questions. “The big problem is that in some cases these politicians are looking for the easy way out and want to blame somebody else and say speculators are taking Europe apart, taking the euro down and ruining the prosperity of our country,” he says, characterizing such charges against hedge fund managers as “nonsense.” “My capital isn’t the capital of the Rothschilds,” he says, insisting that he is working with the “capital of the people,” and that his goal is to protect and increase this capital. Taylor points out that no one from any of the German pension funds that invest their money with him has ever called him on the phone to tell him not to bet against the euro. Rest of article…

That last sentence says it all.

Note: Thanks to Larry Tentarelli for article find.

5 thoughts on “The Destructive [or is it Constructive] Power of the Financial Markets

  1. That article, while noting how powerful Paulson has become, fails to acknowledge how much he has lost this year as a speculator. Additionally, summer 1998, saw the rescue of LTCM–a political event. Then we saw not letting the Dow fall after the Dot com crash–another political event. Bottom line, we had Tulip-mania and politicians never let the natural cleansing process occur–and now over a decade later we have the same tired articles blaming speculators.

  2. The blame on speculators is disgusting. Cuomo’s quote in particular is beyond outrageous. This guy holds an office that could have some influence on securities laws.

  3. This reminded of oil speculators a couple of years ago being blamed for the high price of oil. It also reminded me of The Vandals’ Crown by Gregory Millman.

  4. If politicians don’t want their currency devalued by short sellers, they shouldn’t run their countries into the ground with deficits and unsupported fiscal and monetary policies. A short seller can only succeed long-term if the underlying circumstances allow him to.

    If a politician wants revenge against the shorts, he need simply get his country in order. When his currency begins to rise, the same individuals who shorted it will be the first to reverse their bias and jump on board to ride the upward trend. And those who don’t, will be crushed. Capital is a-political.

    But if he can’t get his country in order, he should quit his bitching and not blame Soros, Taylor, et al because he doesn’t have the nuts to do what has to be done fiscally in his country.

    Soros didn’t “break the Bankof England;” England broke the Bank of England.

    Politicians are a bunch of gutless leeches that live off the stupidity of the average voter, in this case, voters who haven’t got a clue about short selling.

    George Carlin was right: “Think of how stupid the average person is, and then realize that half of them are stupider than that.”

  5. What really pisses me off in addition to the baseless claims that speculators cause crises is the lack of due diligence done by writers. I sympathize with Taylor because:

    1) He probably receives pretty serious threats from perma-vacationing Greeks
    2) The European Union isn’t collapsing because of it’s weak currency (has any reporter even checked the EURUSD over the past year?), it is falling apart because countries do not have the cash to pay back debts that are rolling over, and cannot afford to refi at market rates. This is the RATES market, not the FX market. Taylor does not trade rates, so even if the criticism regarding the power of speculation were deserved, he doesn’t trade rates, so it is logically inconsistent that he is part of the problem.

    This author fails to make the distinction, either because they lacked the intelligence/logic, or had a story that needed to stir up emotions to garner readers. Modern media caters to the lowest common denominator in order to reach a broad audience. This breeds bubbles. Being recently removed from a 4 year university, I can’t begin to tell you how dumb the “journalism” majors are. Besides, how does one major in journalism?

    Any FX trader who went short EURUSD this year either lost money, ate up a lot of balance sheet by posting margin, or probably both. EURCHF is another story, and I was in like flint on that trade. Any and every trend follower who watches G10 FX should have been in on that one. If someone tells me they trade trends and missed EURCHF, I wonder what charts they are watching because this his been the grand-daddy of all pairs over the past year in G10.

    I’ll try and participate more. I wouldn’t call myself a pure trend follower, but I definitely see trends and momentum as very important, more so then fundamentals/”value”. You guys tend to have it right politically.

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