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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (50440)	1/20/2006 2:00:06 PM
From: sciAticA errAticA	Respond to of 110194

howdy do there mr. ramsey - It seems to me that this comment by our good buddy Henry C K Liu on finance capitalism versus industrial capitalism clicks with your musings: from "Of debt, deflation and rotten apples" atimes.com "... In the era of industrial capitalism, a low interest rate was a stimulant. But in this era of finance capitalism flirting fearlessly with debt, lowering rates creates complex problems, especially when most big borrowers routinely hedge their interest-rate exposures. For them, even when short-term rates drop or rise abruptly, the cost remains the same for the duration of the loan term, the only difference being that they pay a different party. While debtors remain solvent, investors in securitized loans go under. Credit derivatives have been the hot source of profit for most finance companies and will be the weapon of massive destruction for the financial system, as Warren Buffet warned..."

To: Ramsey Su who wrote (50440)	1/20/2006 2:16:11 PM
From: J_Locke	Read Replies (1) \| Respond to of 110194

<<So basically are we all pretending to be investors when in fact playing a shell game?>> I would call it not so much a shell game as a wealth transfer from workers to financial arbitragers. Someone who works hard and puts 10% of his after tax income into a safe investment vehicle like CD's or money markets is going to get screwed in the modern financial economy. He will get a zero real return on his investment and people like Bill Gross and Paul McCully will call him a stooge and a patsy who doesn't "deserve" a real return on his investment because he's taking no "risk." In a sound fractional reserve system (say, post-war Germany), he would be rewarded because his self-denial would be creating the excess capital necessary for capital investment and economic growth. In the Greenspan economy, his excess capital is unnecessary (even counterproductive.) The fed can lend money to Lehman Brothers at 1%, Lehman can lend that money to a hedge fund at 1.5%, and the hedge fund can buy all the corporate bonds and mortgage backed bonds necessary for the nation's capital investment needs (and then some.) Our poor 10% saver just provides the minimal reserves the banks need to keep lending to the leveraged speculators. The Fed Chairman may even accuse him of contributing to a "Global Savings Glut."