Questionable Finance

    By EmmaZahn on Sun, 04/03/2011 - 12:50pm |

    Will someone explain to me why, in light of this U.S. Repo Close: Current 3-Year Note at Lowest Rate, Minus 1.7% - Bloomberg, are we, e.g. the US Treasury, paying positive 1.25% on that same note?  That makes its current yield 2.95%.  The difference in time to maturity is not a satisfactory answer.   The overnight markets are so awash with money fleeing to safety that they are gobbling up anything Treasury issues.   A 30-year bond can be rented out as an overnight repo instantly monetizing it.

    Which brings me to another question.  Given the current situation why are so many haranguing the Fed to provide more quantitative easing when it normally does that by buying US Treasuries thus reducing the supply available to SLY investors who are only going to look for the next safest things like other government debt or commodites:  gold, oil, food!   Of course the Fed can provide some quantitative easing by buying other securities but that is suboptimal and  tends to generate a lot of flack from the chattering non-financial economists.

    Final question.   If investors are willing to pay a premium for US Treasuries, why not issue a special series of bills, notes, bonds, whatever to capture those premiums for the benefit of everyone -- except  bankers, of course.  That special series would not be debt just a different kind of currency -- kind of like swapping pennies for dollar bills.  Fungible.

    Comments

    I suspect that the Fed likes the inflation in oil, gold, and food commodities.  It's about the only economic "growth" the bank has been able to engineer.  That it hurts people doesn't matter to them, banks love it!


    by Michael Maiello on Mon, 04/04/2011 - 2:03pm

    What banks love is volatility.  They are arbitrageurs.  In other words, they make more money when prices fluctuate.  The Fed is a bank

    I remember a stockbroker who got very happy when the market roiled.   With just about every order he got whether buy or sell, he would do a little touchdown-like dance and chant "Churn, baby, churn." :)


    by EmmaZahn on Mon, 04/04/2011 - 2:52pm

    What's a bank?

    Once upon a time, I remember they provided a service to the public...a safe and secure place to store your money and earn some interest, and borrow funds for items of necessity to make one's life easier. They also provided an avenue for modest investing for those with a little extra cash.

    But like most fairy tales, reality sets in and it was nothing but a story.

    Today, banks are established houses of high stakes gambling...they don't need investors anymore...they want it all for themselves. Think of them as a manufacturing base making money hands-over-fists, but without producing a product to be sold to the public. It's a real life monopoly game with the FED as the banker.

    I just finished reading 13 Bankers.

    Conclusion : Too Big To Fail should have been broken up into smaller, more manageable parcels that wouldn't be a financial threat to the economy.


    by Beetlejuice on Mon, 04/04/2011 - 8:51pm

    a safe and secure place to store your money and earn some interest, and borrow funds for items of necessity to make one's life easier. They also provided an avenue for modest investing for those with a little extra cash.

    FDIC provides the safe and secure for the first $250,000; then repurchase agreements (repos) of US Treasuries, other federal agencies and state and municipal bonds will secure most of the rest.   Fannie and Freddie were considered risk-free before 2007-8 too.  

    Bankers no longer have to be pillars of propriety to convince people to trust them.  All they need is an FDIC sticker and paid up premiums so it is FDIC that we trust.    In my mind, that makes FDIC the biggest banker in the country.

    Haven't read 13 bankers but I do not think smaller is automatically better.   The problem is not the size of the banks; it is the risk they pose and the risk now is systemic.   Banks, large and small,  are are inextricably linked together through THE money market.aka the shadow banking system and its center is the Federal Reserve Bank of New York.

    Amazon.com: Stigum's Money Market, 4E (9780071448451): Marcia Stigum, Anthony Crescenzi: Books

    Believe it or not, that cover art was pre-crash.

     


    by EmmaZahn on Mon, 04/04/2011 - 9:24pm

    So you don't think smaller is automatically better, eh? Chew on this...

                   BANK                                       ASSETS as %-age of GNP            

    • Bank of America                                       16
    • JPMorgan Chase                                      14
    • Citigroup                                                   13
    • Wells Fargo                                                9
    • Goldman Sachs                                          6
    • Morgan Stanley                                          5    

    That's only 6 banks whose total assets equal 63% of GNP. I'd say that poses a serious risk, especially seeing how those same banks were able to redirect Congress from accomplishing any serious regulation reform to stymie the efforts they employed that ran the financial markets into the ground in 2008. In short, size and risk are directly related to one another....the more assets accumulated increases the risk factor of everything going to hell in a handbasket if they crap out playing their high stakes financial game of roulette.


    by Beetlejuice on Tue, 04/05/2011 - 5:46am

    So,.you break them into smaller units, do the same people who own the big banks have a proporational interest in the smaller ones?  It is the people behind the shingle with too much political clout, giving them more shingles to hide behind is not the sort of electoral reform we need to reduce their influence.

    Also, the way the banks you list got to be so big and influential is through their special relationship with the Federal Reserve Bank of New York and its Open Market Operations.  Until someone comes up with another way to do whatever it does with its only autoriized counterparties aka its primary dealers aka those banks, neither forced downsizing nor regulatory reform will have much impact.

    For the record,  do not support going back to a gold standard or forward to MMT are necessary, not that either would make any difference in the banks' political influence anyway.


    by EmmaZahn on Tue, 04/05/2011 - 10:43am

    13 Bankers is really about how those 6 banks are a financial money cartel creating and packaging games and selling those instruments to unsuspecting investors in the public realm while covering their asses by taking out insurance against those very same instruments knowing full well they'll implode leaving the investor short changed while the bankers reap the profits from their loss. It's high stakes fraud with GOPer's blessing becasue it's money in their political campaign coffers. So as long as they have Congress's ear, they have no fear anyone will dare to suggest legislation to make them behave or take responsibility for their actions.


    by Beetlejuice on Tue, 04/05/2011 - 11:02am

    I do not disagree that they have too much influence and play rigged financial games but the way to take them down is too create a countervailing power not a whole bunch more of the same that just look smaller.  

    What kind of spider is it that releases a whole bunch of baby spiders when you squash it?  That is all that insisting on downsizing will do.


    by EmmaZahn on Tue, 04/05/2011 - 11:52am

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