Society needs more "Good" Traders

zdreg · Oct 10, 2010

Quote from Martinghoul:

That's largely off the mark. The contraction in credit is not just a supply issue. Most recently it's been mostly a consequence of demand shrinking due to deleveraging. Banks are investing in government bonds, but it's mostly not because they're afraid to lend to businesses. It's because a) as I said above, businesses that are crediworthy don't need the credit and would rather pay down debt accumulated in the previous cycle; b) banks are addressing the liquidity regulations, such as Basel III, which require them to hold a much higher percentage of govt bonds on their balance sheets than before. This is all part and parcel of what Reinhart & Rogoff call "financial repression".

Well, I don't see a bubble in bonds, really, but you can call it whatever you will. The term "bubble" is very much abused and, most importantly, ill-defined, so I don't use it and don't argue with its use. Surpluses of lender nations have nothing to do with the situation in the govt bond mkt, but result from patterns of global trade. As to QE, the idea is that once you bolster bank balance sheets, they'll happily supply credit to the rest of the economy. Of course, as I mentioned above, if it's not a supply problem, QE isn't that effective. Finally, regarding executive pay, what does that have to do with anything?

Firstly, your sugestion has some merit. This version of credit easing has been adopted by other central banks (BoE, SNB and, kinda, ECB). The problem with this, of course, is who's gonna decide which company is "competitive and productive", if you're gonna take this function away from the mkt? Is it going to be a panel of "govt experts" who will tell the Fed which corporate bonds to buy? Moreover, I think you're being excessively optimistic regarding the effect, unfortunately. After all, one of the indirect (but intended) effects of QE has been the unprecedented rally in credit, which meant that corporations have been able to borrow at rock-bottom yields (there was a thread here about IBM issuing at 1%). Has that translated into lower unemployment and a rise in inflation? So direct credit easing, in my view, won't help much. The problem is that the American economy has, as a result of the crisis, undergone a very significant split. The large corporations that have access to the bond mkt are doing marvellously well, whereas small businesses haven't recovered at all. This tiering (which you can observe by looking at the ISM vs NFIB data) means that the Fed is, in fact, pushing on a string to a large extent.
More...

this is exactly the scenario that Obama wants to create. he does not believe in free markets as the determinant of price and allocator of resources. he wants large corporations particularly financial institutions to dominate because then the government can more easily run the economy by edict.

trefoil · Oct 10, 2010

Quote from Martinghoul:

That's largely off the mark. The contraction in credit is not just a supply issue. Most recently it's been mostly a consequence of demand shrinking due to deleveraging. Banks are investing in government bonds, but it's mostly not because they're afraid to lend to businesses. It's because a) as I said above, businesses that are crediworthy don't need the credit and would rather pay down debt accumulated in the previous cycle; b) banks are addressing the liquidity regulations, such as Basel III, which require them to hold a much higher percentage of govt bonds on their balance sheets than before. This is all part and parcel of what Reinhart & Rogoff call "financial repression".

Well, I don't see a bubble in bonds, really, but you can call it whatever you will. The term "bubble" is very much abused and, most importantly, ill-defined, so I don't use it and don't argue with its use. Surpluses of lender nations have nothing to do with the situation in the govt bond mkt, but result from patterns of global trade. As to QE, the idea is that once you bolster bank balance sheets, they'll happily supply credit to the rest of the economy. Of course, as I mentioned above, if it's not a supply problem, QE isn't that effective. Finally, regarding executive pay, what does that have to do with anything?

Firstly, your sugestion has some merit. This version of credit easing has been adopted by other central banks (BoE, SNB and, kinda, ECB). The problem with this, of course, is who's gonna decide which company is "competitive and productive", if you're gonna take this function away from the mkt? Is it going to be a panel of "govt experts" who will tell the Fed which corporate bonds to buy? Moreover, I think you're being excessively optimistic regarding the effect, unfortunately. After all, one of the indirect (but intended) effects of QE has been the unprecedented rally in credit, which meant that corporations have been able to borrow at rock-bottom yields (there was a thread here about IBM issuing at 1%). Has that translated into lower unemployment and a rise in inflation? So direct credit easing, in my view, won't help much. The problem is that the American economy has, as a result of the crisis, undergone a very significant split. The large corporations that have access to the bond mkt are doing marvellously well, whereas small businesses haven't recovered at all. This tiering (which you can observe by looking at the ISM vs NFIB data) means that the Fed is, in fact, pushing on a string to a large extent.
More...

Well, some smart folks are figuring out there's money to be made lending to the small businesses who can't access the bond market: New banking opportunities open up

Log in or Sign up

Society needs more "Good" Traders

zdreg

trefoil