Swapping Places

By | 2014-09-05T17:54:20+00:00 February 28th, 2010|Global Market Update|

In my youth, a swap was a way for the big kids to cheat the little kids out of their favorite marbles. When I first got into banking, it was a way for big banks to “help” the smaller banks manage their risk. Not that much has changed. Eventually, the money-center banks made markets swapping currencies, credit risk, and most everything else. If you can measure it, you can swap it. The bigger the market, the better for the market-makers. By charging a spread [...]

Down to Earth

By | 2014-09-05T17:53:53+00:00 February 26th, 2010|Global Market Update|

So what will happen to the deficit? Some people are worried that with all that debt out there, the government will try to inflate it away. After all, if inflation raises the general price level, then all debts are devalued. That’s what happened in the late ‘60s and ‘70s. Only, a lot has changed since then. Government benefits are now indexed to inflation. Tax rates are indexed to inflation. Most debt is short-term, and the interest on that debt would accrue more debt. And [...]

Banks, Bonuses, and Bernanke

By | 2014-09-05T17:53:10+00:00 February 24th, 2010|Global Market Update|

Welcome to the Political Fed. Do you like it? On Thursday last week the Fed raised the discount rate on bank borrowings by .25%. They also removed some of the extraordinary measures that they’ve had in place since the winter of 2008. According to its web-site, the Fed thinks that the financial crisis is winding down. It's natural to ask why. Why did the Fed turn and raise the discount rate just after voting last month to keep interest rates low “for a considerable [...]

Why Not Here?

By | 2014-09-05T17:51:25+00:00 February 23rd, 2010|Global Market Update|

Will the US become a Greek Tragedy? After all, both countries have significant fiscal deficits, are just recovering from severe recessions, and have large foreign bondholders. Moreover, until recently, both have been in denial about the severity of their deficits. The fear is that exploding debt funded by foreign investors will make us dependent upon them for our economic growth. If the Chinese threaten to sell our bonds, they might force us into a fiscal austerity program—perhaps funded by lower defense spending—akin to the [...]