Comments on: The Liquidity Monopoly http://alephblog.com/2008/12/06/the-liquidity-monopoly/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Sun, 12 Feb 2012 18:05:33 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: James Cullenhttp://alephblog.com/2008/12/06/the-liquidity-monopoly/comment-page-1/#comment-20318 James Cullen Mon, 08 Dec 2008 05:36:21 +0000 http://alephblog.com/?p=1216#comment-20318 Accrued Interest (http://accruedint.blogspot.com/2008/12/port-authority-you-overconfidence-is.html) has great coverage of the problems behind the failed NJ/NY Port Authority issuance, but the end of this Bloomberg article (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apiJ2jG6NvJw) really hits on what you've been saying. ----- The Port Authority’s taxable notes would compete for demand from investors also considering more than $15 billion of three- year securities sold by banks with recently approved guarantees from the Federal Deposit Insurance Corp. Mary Talbutt-Glassberg, a vice president at Devon, Pennsylvania-based Davidson Trust Co., with about $1 billion under management, said she opted not to pursue the Port Authority bonds. “I would feel better if there were definite financial support on the deal,” such as insurance like that provided by the FDIC, she said. ----- Accrued Interest (http://accruedint.blogspot.com/2008/12/port-authority-you-overconfidence-is.html) has great coverage of the problems behind the failed NJ/NY Port Authority issuance, but the end of this Bloomberg article (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apiJ2jG6NvJw) really hits on what you’ve been saying.
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The Port Authority’s taxable notes would compete for demand from investors also considering more than $15 billion of three- year securities sold by banks with recently approved guarantees from the Federal Deposit Insurance Corp.

Mary Talbutt-Glassberg, a vice president at Devon, Pennsylvania-based Davidson Trust Co., with about $1 billion under management, said she opted not to pursue the Port Authority bonds.

“I would feel better if there were definite financial support on the deal,” such as insurance like that provided by the FDIC, she said.
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]]> By: AllanFhttp://alephblog.com/2008/12/06/the-liquidity-monopoly/comment-page-1/#comment-20311 AllanF Sun, 07 Dec 2008 18:18:25 +0000 http://alephblog.com/?p=1216#comment-20311 <i>bubbles... end when cash flows to finance the bubble are inadequate to carry the assets in the bubble</i> I think that can be operative to a Treasury bubble. It would well last until the Treasury has issued so much debt that tax payers revolt. If that is the case, this could last a lot longer and end a lot uglier than anyone is currently considering. Unfortunately I don't know what signs to watch for to test if that is the case. bubbles… end when cash flows to finance the bubble are inadequate to carry the assets in the bubble

I think that can be operative to a Treasury bubble. It would well last until the Treasury has issued so much debt that tax payers revolt. If that is the case, this could last a lot longer and end a lot uglier than anyone is currently considering.

Unfortunately I don’t know what signs to watch for to test if that is the case.

]]> By: MattYounghttp://alephblog.com/2008/12/06/the-liquidity-monopoly/comment-page-1/#comment-20306 MattYoung Sat, 06 Dec 2008 21:31:28 +0000 http://alephblog.com/?p=1216#comment-20306 The poster hit on the "fear of" quite implicitly. Investors fear that they do not know what the future high growth sectors are. The uncertainty in identifying high growth sectors is that measurement by money is unreliable at the moment. Unreliable because the banks just finished investing in the wrong sectors, and now they have to use government to re-monetize their path to the successful sectors. The poster hit on the “fear of” quite implicitly. Investors fear that they do not know what the future high growth sectors are. The uncertainty in identifying high growth sectors is that measurement by money is unreliable at the moment. Unreliable because the banks just finished investing in the wrong sectors, and now they have to use government to re-monetize their path to the successful sectors.

]]> By: maynardGkeyneshttp://alephblog.com/2008/12/06/the-liquidity-monopoly/comment-page-1/#comment-20302 maynardGkeynes Sat, 06 Dec 2008 16:51:15 +0000 http://alephblog.com/?p=1216#comment-20302 You are definitely on to something interesting here, but I think you need to clarify what exactly the "fear" is of? Is it risk of default, or is is that the risk of lack liquidity itself? I raise this because of the extreme behavior in the TIPS market. There is no risk of default on these bonds -- -- they are treasuries, unlike FDIC guaranteed or "implicit" guaranteed debt such as Fannie or Freddie, which bear some risk greater than that of Treasuries, however slight. The only risk to the coupon is deflation -- -- but does the remote possibility of sustained deflation explain more than a tiny fraction of what's been going on with them? I don't think so. The obvious problem with TIPS is liquidity, or lack thereof. This suggests to me that the overwhelming explanation for the poor performance lately of TIPS, and perhaps other nearly risk-free bonds -- -- general obligation municipal bonds in particular -- -- is lack of liquidity. And who would be most concerned about lack of liquidity? I would think it would be highly leveraged players like hedge funds, who simply can't afford to be stuck with any illiquidity in a panicky market. I'd be interested in your thoughts about this. And, if the problem is lack of liquidity, shouldn't the TARP funds be used to provide liquidity to solid collateral that is simply illiquid, under the classic Bagehot remedy. You are definitely on to something interesting here, but I think you need to clarify what exactly the “fear” is of? Is it risk of default, or is is that the risk of lack liquidity itself? I raise this because of the extreme behavior in the TIPS market. There is no risk of default on these bonds — – they are treasuries, unlike FDIC guaranteed or “implicit” guaranteed debt such as Fannie or Freddie, which bear some risk greater than that of Treasuries, however slight. The only risk to the coupon is deflation — – but does the remote possibility of sustained deflation explain more than a tiny fraction of what’s been going on with them? I don’t think so. The obvious problem with TIPS is liquidity, or lack thereof. This suggests to me that the overwhelming explanation for the poor performance lately of TIPS, and perhaps other nearly risk-free bonds — – general obligation municipal bonds in particular — – is lack of liquidity. And who would be most concerned about lack of liquidity? I would think it would be highly leveraged players like hedge funds, who simply can’t afford to be stuck with any illiquidity in a panicky market. I’d be interested in your thoughts about this. And, if the problem is lack of liquidity, shouldn’t the TARP funds be used to provide liquidity to solid collateral that is simply illiquid, under the classic Bagehot remedy.

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