Okay, here is tonight’s rule:

The assumption of normality for asset price changes is wrong in virtually every financial market setting. The proper distributions are fatter tailed and more negatively skewed.

First, I disagree with Volcker and Sarkozy regarding supporting Greece, versus the Euro. If Greece defaulted, Greece would lose the low cost funding of the Euro. The Eurozone would lose a country, but the Euro would retain its strength, and marginal nations prone to cheating would come into line. Tough love is the best policy; don’t bail others out if you care about the union as a whole.

On to tonight’s rule: Unless there is a natural purchaser of an exposure that one is trying to hedge, someone must speculate to a degree to allow you to hedge. If the speculator is undercapitalized, risks to the financial system rise.