Posner: Greek debt history

The answer is probably that the market believed that either eurozone countries would discipline Greece's financial excesses or bail out Greece if they failed. If so, the irony is palpable. Greece (like most other eurozone countries) did not comply with a treaty provision requiring financial discipline but was allowed into the eurozone anyway. Investors must have reasoned that if the treaty provision governing financial discipline could be ignored, then the treaty provision banning bail-outs could be ignored as well. And they were right. But if the treaty could be ignored, then why would entering a treaty make a difference to Greece's creditworthiness in the first place? We suspect that the story is about politics, not economics. In their effort to press forward with European integration, political elites sought monetary union in the hope that it would forge bonds between still mutually suspicious nationalities. But monetary (and political) union cannot succeed when vast disparities of wealth exist across regions.

Political elites squared this circle by (we suspect) encouraging national banks to buy up Greek debt despite reservations about its quality - so that transfers would take place but disguised as credit made cheap by implicit government guarantees.

Authors: Deflation/inflation debate

Timpel: derivatives clearing

The G20 has agreed that OTC derivatives contracts should, if sufficiently standardised, be moved to CCPs and be reported to trade repositories. The Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) are currently providing guidance on how OTC derivatives' CCPs and trade repositories may increase their resilience. The European Commission will propose European Market Infrastructure Legislation that will establish EU legislative frameworks for CCPs and trade repositories.

Briathwaite, Guerrera; Fed review bank pay models

Barber on EU problems/solutions

Blitz: UN global crime sector an economic power

In one of the most comprehensive analyses undertaken of transnational criminal activity, the UN Office on Drugs and Crime has calculated that the illicit trade in a range of commodities – including drugs, people, arms, fake goods and stolen natural resources – has an annual value of roughly $130bn.

The report shows how transnational crime continues to be dominated by the trade in cocaine and heroin, a business whose product is worth about $105bn a year.

But it suggests that other criminal activities – including the trafficking of natural resources, product counterfeiting and maritime piracy – are becoming of increasing concern to the international community.

...

“Transnational crime has become a threat to peace and development, even to the sovereignty of nations,” says Antonio Maria Costa, the UNODC’s executive director. “Today, the criminal market spans the planet: illicit goods are sourced from one continent, trafficked across another, and marketed in a third.”

Mr Costa says trans­national crime has become so intense that it risks undermining a number of states, most notably in Africa. The world’s big powers are showing “benign neglect” towards a problem that is hurting everyone, “especially poor countries that are not able to defend themselves”.

Mackenzie: US Treasuries disbelief in US growth

But the real gains have come from owning longer-dated Treasury paper, as an index of bonds beyond 20 years in maturity is up 9 per cent so far in 2010, after a slide of 21.4 per cent.

The value of long-term bonds is primarily determined by expectations of inflation, which has seen the core consumer price index hit a 44-year low.

A weaker economy in the second half of this year, accompanied by further downward pressure on prices, would be a plus for bonds.

Lombard Street Research notes that broad money in the US has contracted for the past six months – and for 15 months of the past 18 – at a time when the Fed has maintained easy monetary policy. “The message from the US broad money and credit trends over the past two years is clear; there is little likelihood of a return to sustained trend rate, let alone above-trend, growth in the near future,” says Gabriel Stein, director at Lombard.

Against that backdrop, the debate now turns on whether bond yields will break the lower band of their range, accompanied by stocks hitting fresh lows in the coming months.

Oakley: Interbank rates reflect Europe bank strss

European interbank lending rates have diverged to their widest levels since they were launched in December 1998 because of stresses in the eurozone banking system.

Euribor money market rates, which are set by 42 banks in Europe, have risen above euro Libor rates, which are set by 16 banks in London, due to greater tensions in the eurozone.