Saturday, August 13, 2011


1.) Cash-rich investors choose crazy Treasury returns - Gillian Tett (FT)
"... the “cash” which companies, asset managers and securities lenders held on their balance sheets two decades ago... were modest, totalling just $100bn across the globe... but in recent years, these pools have exploded in size... institutional cash managers now control between $2,000bn and $4,000bn globally...what is more striking is where this “cash” has ended up. Two decades ago, it typically was placed in bank accounts. But... in 2007... just 16-20 per cent of these funds were on deposit. Why? ... the key factor was risk management, not yield. From 1990 up to the crisis, US Federal Deposit Insurance Corporation only guaranteed the first $100,000 of any account. And while cash managers have tried to use multiple banks, their cash pools are so large that effective diversification is impossible."

"... the president... majorities in Congress... all have embraced the “long-term deficits” which appear in the projections as though they were foreordained history... but there isn’t, in fact, a “long-term deficit problem.” So long as interest rates stay below the growth rate, as they are, debt-to-GDP levels eventually stabilize and even decline. The notion that there is a big problem is pure propaganda based on a pseudo-debate... so what is to be done? Nothing [will] happen until ideas change... and the first change must be to challenge and reject all the nonsense about long-term budget deficits, national bankruptcy or insolvency, and even “fiscal responsibility” that we are hearing. The entire object of this propaganda campaign is to cripple government—including regulation and the courts—and to roll back Social Security, Medicare, and Medicaid. The defense of those successful, effective—and yes, sustainable—programs just became far more difficult, and perhaps impossible..."

"S.&P.’s bond ratings from five years ago would have told you almost nothing about the risk of a default today. They had no insight about the threats in European markets, nor about which countries in Europe were relatively more likely to default... by comparison, simply looking at a country’s ratio of net debt to G.D.P. would have been a better predictor of default... it only explains about 12 percent of default risk... still, this simple statistical indicator does better than the S.&P. ratings."

4.) On S&P, Downgrades, and Idiots - Economics of Contempt
"S&P was flat-out wrong — no caveats. They are, to put it very bluntly, idiots, and they deserve every bit of opprobrium coming their way. Look, I know these guys... back when I was an in-house lawyer for an investment bank, I had extensive interactions with all three rating agencies. We needed to get a lot of deals rated, and I was almost always involved in that process... to say that S&P analysts aren’t the sharpest tools in the drawer is a massive understatement... before meeting with a rating agency, we would plan out our arguments... with S&P, it got to the point where we were constantly saying, “that’s a good point, but is S&P smart enough to understand that argument?” I kid you not, that was a hard-constraint in our game-plan." 

5.) The EPA: the Tea Party's next target - Diane Roberts (The Guardian)
"Republicans are going after the EPA. It's a "job-killer". America's high unemployment rate is not the fault of the worldwide recession or the housing bubble or... two unfunded wars on top of George W Bush's silly tax cuts for the rich, it's those damned DC bunny-huggers.... Michele Bachmann... advocates abolishing the EPA as soon as God puts the Tea Party in charge. She blames it for a host of anti-free market evils... to the "hoax" that is global climate change. The bill funding EPA... is a dirty bomb, meant to destroy any rule that slows down environmental degradation. The legislation is so loaded with industry-backed amendments and riders... that it reads like a polluters' letter to Santa Claus. One provision would allow uranium mining right next to the Grand Canyon. Another would stop EPA from regulating pesticides, even if the pesticides kill endangered plants, birds, fish and other animals. EPA's funding would be slashed by 34% over the next two years, but America's oil and gas companies would be given an extra $55m on top of the $36bn in federal subsidies they already get."

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