Tuesday, March 24, 2009

Pause for Thought

I have very few problems with the authorities attempts to triage the patient (using Dr Roubini's analogy). I do of course have some more restrained opinions with respect to the nuances, but nothing (as a critic) that hasn't been more articulately or exhaustively covered by those more intelligent and cogent than I.

But as a trader/investor I will admit to being a little bit skittish at the thought of the P&L consequences of posting a trillion dollar purchase of US Govt Bonds, here...and now ...at these prices and yields. For if "price" IS any indication of market distress, and forward-looking expected return is (acknowledging the exception of a decade-and-a-half of JGB yields with a 1-single-digit handle) related to value, then by deductive analogy, one might posit that Treasury Bonds are not the part of the patient that requires such attention in the emergency room.

Yes, I understand it is a tool, in a larger policy context. And that there are perceived positive externalities (like causing long rates to artificially hover at lower levels than they might otherwise thermodynamically tend). But given the length and breadth of distress in the markets, and it would seem, on financial institution (and household!) balance sheets, if one were to post trillion-dollar tickets, there are far more attractive opportunities elsewhere.

10 comments:

Anonymous said...

There are vast amounts of derivatives that will blow up with even small moves in various rates.

Notwithstanding Fed propaganda about its concern for the overall economy and main street, almost all of their actions seem aimed at various manipulations designed to benefit their only constituency, the big banksters.

In the unlikely event that you could elicit from any of them an acknowledgment that there are some negative consequences to the economy from their actions, it is virtually certain that they would claim that they are only hurting the economy in order to help it.

It seems clear that to the Fed and Treasury the Big Banksters _are_ the economy. It's really pathetic.

Anonymous said...

I'd rather see Bernanke buy Treasuries than give underwater non-recourse loans under Geithner's PPIP. The loans sound like illegal and unconstitutional gifts of public funds, just like Bair's underwater guarantees sound like illegal gifts.

Of course, this isn't surprising Geithner also seems like he violated the banking laws at the NY Fed by refusing to put troubled big banks into receivership. Geithner was required to do that under 12 USC 18310.

The Senate needs to take action and investigate hold Geithner, Bair, and Bernanke accountable if they are breaking the law.

matt said...

There are only two possible solutions to an unserviceable debt crisis: print money (create inflation) or bankruptcies. The former is more politically feasible than the second, so we have our treasury situation.

Anonymous said...

I'd rather see Bernanke buy Treasuries than give underwater non-recourse loans under Geithner's PPIP. The loans sound like illegal and unconstitutional gifts of public funds, just like Bair's underwater guarantees sound like illegal gifts. Of course, this isn't surprising Geithner also seems like he violated the banking laws at the NY Fed by refusing to put troubled big banks into receivership. Geithner was required to do that under 12 USC 18310.

000000000

The Fed Member Banks are not a government agencies, so if their actions are not statutorally authorized, they are illegal under the doctrine of ultra vires. Not the Constitution.

Geithner is a complete hypocrite. He claims he cares about the law, as grounds against passing retroactive laws shutting down bonuses. However, Geithner is arguably encouraging the Fed and FDIC to act illegally, and arguably acted illegally by refusing to put big banks in receivership while at the Fed.

Demetrius said...

When the G20 sit down to dinner, should the IMF be serving the meal?

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Phillip said...

Ellen Brown correctly pointed out that at least if the Fed buys Treasuries the taxpayers get a rebate of interest paid (less expenses of course). http://www.webofdebt.com/articles/bernanke.php Try asking the Chinese for a rebate!

Blissex said...

«Geithner is a complete hypocrite. He claims he cares about the law, as grounds against passing retroactive laws shutting down bonuses. However, Geithner is arguably encouraging the Fed and FDIC to act illegally, and arguably acted illegally by refusing to put big banks in receivership while at the Fed.»

Geithner is a "good American" according to Real American philosopher and social researcher Newt Gingrich:
http://classwebs.SPEA.Indiana.edu/bakerr/v600/a_new_look_at_environmental_poli.htm
«If you have a society where almost every middle class person routinely fudges the law, that's telling us something. We have laws that matter-murder, rape, and we have laws that don't matter. [ ... ] The first thing that every good American says each morning is "What's the angle?" "How can I get around it?" "What does my lawyer think?" "There must be a loophole!" Then he proceeds to work the angle, and the bureaucracy spends its time chasing that and writing new regs to stop him. America is the most incentive-driven society on the planet.»

Anonymous said...

Where are you?

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