"The Smoke and Mirrors of The Euro Sovereign Rescue Package: A Precursor for the United States?" with Professor Lewis Spellman PhD.

  • 18 May 2010
  • 6:00 PM - 9:00 PM
  • Marie Callendar's Restaurant 9503 Research Blvd. Austin, TX 78759

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Abstract

The developed world governments of Europe, Japan and the US all have promised more they can deliver for the baby boomer generation's retirement/medical expenses. These governments borrow in order to deliver the promised retirement life support. Though understood analytically for a long time, the financial markets finally confronted the prospects that the debt they are being asked to purchase had a high likelihood of default. The issue came to a head when Greek government debt yields quickly become junk rated and priced and the Euro zone countries believed a similar fate was about the spread throughout Europe with the US just one step behind.

In the crises week end a Euro Zone Rescue Package was cobbled together. At its heart it adopts all the cover-ups and half truths employed by Enron and the investment banks that lead to the financial crisis of 2007-08: Hide bad assets in an off-balance entity (The SIV) that is not carried on the balance sheet. However the SIV requires funding to purchase the objectionable Euro government bonds that the market will no longer treat as investment grade bonds. The plan calls for the same objectionable governments to "guarantee" the SIV funding that will in turn allow the SIV to purchase the objectionable government debt. How long the mirage of credibility will work in the market is unclear but we shall seek to see through the smoke and mirrors and what we will find is comparatively insolvent governments will guarantee the debt of an entity to purchase its own rejected government debt.

Bio

Since 1971, Lew Spellman has taught financial markets at the McCombs School of Business at the University of Texas at Austin, where he is a Professor of Finance. He has also taught at the LBJ School of Public Affairs, the UT School of Law, the University of California, Berkeley and Stanford University. He holds the degrees of BBA and MBA from the University of Michigan and MA and PhD degrees in economics from Stanford University.

Professor Spellman's primary teaching is in financial markets and institutions at both the graduate and undergraduate level with an emphasis on interpreting and analyzing current market and policy developments and market trends. His academic publications appear in the Journal of Finance, Journal of Financial and Quantitative Analysis, Journal of Money, Credit and Banking and Finance among others.

His experience outside of academics includes government service as Assistant to the Chairman of the President's Council of Economic Advisors for the Johnson Administration and Economist with the Federal Reserve Board. His published works primarily concern the market pricing of financial institution claims. Professor Spellman's business interests include serving as Director and Chair of Investments, Magna Carta Insurance Company. Previously, he served as Chairman and CEO of Real Rate Financial and Electronic Exchange Technologies. He holds several U.S. patents related to financial instruments in an inflation area environment.


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