An interesting take on U.S. treasuries as an investment. (HT zerohedge). Chris Pavese over at Zero Hedge provides a contrarian view to the common wisdom that the government printing presses will spawn massive inflation. Chris argues that with our increasingly large debt burden, relatively small increases in yields will substantially increase the cost of servicing our massive debt which will off expansion and keep a lid on inflation.
Chris points out that recent asset bubbles have been burst by successively lower rises in interest rates. Short treasuries is a crowded trade with everyone and their mother calling for massive inflation; that day may very well come, but in the near to mid-term, the risk of inflation may be grossly overstated.
Personally, I believe that with the dual impact of the economic stimulus package rolling off in the second half of 2010 and the massive shadow inventory of foreclosed homes waiting to hit the market, we are on our way to the second leg down.
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I’ve been following this for a while and even started a blog post about it back in the fall. This is just the latest in a string of examples of what happens when those in government bow to the kiss the ring of the “all-knowing” power brokers on Wall Street. The stock market will fix everything, remember the mantra? Social Security – privatize it, let them invest!
Well it’s no surprise that Bush appointee and former Lehman Brother’s banker would decide that the Pension Benefit Guarantee Corp should invest its funds more aggressively. He pushed to move the investment mix from a very conservative allocation to one that relied heavily upon equities, private equity, and other alternative investments… right at the peak of the market in February of 2008.
Now, the U.S. Senate is asking the Inspector General for the PBGC to investigate Mr. Millard’s contacts with executives of banks who were awarded business by the PBGC about job opportunities for him after his brief stint in public service.
With corporate bankruptcies and poor investment returns pushing the PBGC to the brink of insolvency, guess who will be paying for Mr. Millard’s mistakes. The same folks who have been ponying up to pay for the avarice and greed of Wall Street executives… you and me.
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Update on the Fed’s $123 billion in emergency lending to AIG.
For those intrigued by my credit default swap post, there is a good article in yesterday’s New York Times. The article asks, “where are the funds being lent to AIG by the Fed going within the company”
The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular accounting.
The article goes on to describe that accounting for its derivatives trades, largely the selling of credit default swap protection, had been severely lacking oversight. As more attention was drawn to the activities of AIG’s Financial Products group, an alarming picture began to emerge.
How the Credit Crisis Will Make it Easier for Rich Kids to Get Into Their College of Choice
You may have heard that a male student interested in the humanities has a better chance of being accepted to a prestigious liberal arts college than a comparably qualified female candidate. How about the tale of the gifted athlete with sub-par grades who gets a full-ride to “State” on a football scholarship; everyone tells that story. Have you heard the one about the rich kid from the Upper West Side who gets in because his family is wealthy? This isn’t the kid whose family’s name is plastered all over the football stadium, dining hall, and library; he’s just your everyday, average, wealthy student who doesn’t need financial aid. The sad reality is that all but a select few of this country’s institutions of higher education take a student’s ability to pay into consideration when making an admissions decision.The economic realities of college admissions run deeper and darker than most people know.
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Credit Default Swaps – A Primer
A credit default swap is a type of credit derivative. Credit derivatives “derive” their value from an underlying credit instrument; generally the bonds of sovereign nations or the bonds of a corporate entity. In recent years, credit derivatives have been created that are based obligations rather than entities; one common reference obligation are asset backed securities based on home equity loans.
A credit default swap is a contract that allows one to take or reduce credit exposure. The contract is between the two parties and does not directly involve the underlying reference entity. A credit default swap is essentially an insurance policy where one entity pays a premium to a second entity to take on the risk of a loss.
Let’s look at a fictitious example.
You could be forgiven if you don’t know where the candidates stand on immigration. With the financial market meltdown in full swing and a full-blown media circus surrounding $150,000 shopping sprees and fair-weather fans, the press hasn’t had much time to talk about immigration. The Brookings Institution has published this fact sheet comparing the candidate’s plans that is worth reading.
So where do McCain and Obama stand on important features of immigration reform? As it turns out, despite what the ads would have you believe, not too far apart.