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To: ahhaha who wrote (88741)	9/11/2007 12:52:28 AM
From: Sr K	Respond to of 306849

This was about short-term money. I was responding to Grace's "there is no free market for money" and "are you trying to argue that there is a free market for short term money because we all trade government securities freely?" I stand by my implication that active markets with many participants, and after-auction liquidity, such as 91-day T-bills, price more fairly with less disparity between price and value than illiquid markets with fewer participants. "Rates [are] freely set" not by buyers or sellers, but by both, and the more the better, and so I challenged the assertion that "trading them freely" would be sufficient to fairly price a T-bill or a T-Note (or any other security). That's information provided by the after-auction markets. Without those sellers, "we'd" be flying blind, to use your analogy. The point of using T-bills (rather than 5.10% bank CD's) is preservation of capital while waiting for other opportunities or as margin for hedging or shorting or other opportunities. I was wondering if Grace or others on this board think T-bills are not risk-free or priced accurately. At another extreme in the debt markets, some tax-frees almost can't be traded after they are issued. You buy a whole issue or a piece of it, and expect to hold it to maturity. If a buyer and a seller want to know the price they pay or receive is fair and the corresponding yield is a market rate, the narrower the spread, the closer it will be. That will only happen, first, if there is a bid and asked price, and generally, if there are many participants. Or if you set the price without knowing if you are a buyer or seller. If you think the treasury "Markets don't have ANYTHING to do with value", I think you're the proverbial fool. Or you thought we were talking about equities. Or both.