"F. George McDuffee" wrote in message
...
On Sun, 14 Dec 2008 13:24:06 -0800, "John R. Carroll"
wrote:
snip
I hope one of them took a couple of seconds to explain the negative yield
fiasco to you Ed.
It's a perfect example of the incompetence I've come to expect from the
Bush
administration.
snip

I wish I could have been at Ed's party. I am sure the ethical
bankers and brokers were as p****d-off as everyone else at the
ruin of their industry/profession for the sake of the short-run
quick buck and EZ-money. It turned out that finance was just
another "cash cow" to be milked as hard as possible until she
went dry and then sent to the slaughter house.

While I missed the party, the global fiscal/economic environment
is now so far from normal that the usual considerations such as
the "return *ON* my investment" are now trumped by considerations
such as the "return *OF* my investment." [Nod to Will Rogers
here]

There are very few places where Dollar denominated funds in the
range 10s of millions into the billions can be parked quickly in
safety other than short term US government securities. (5 basis
points is still cheaper than renting a vault and paying guards to
store cash, even if that much paper money was available....)

The capital flight from the commercial banks to US government
securities is a disaster for not only the commercial banks but
the economy as a whole because each dollar placed in governmental
securities is a 10 dollar [or more] reduction in available credit
due to the nature of fractional reserve banking.

There is also the velocity factor in that the money placed in
governmental securities is not circulating.

While the FRB has their "magic money machine" operating at warp
speed, the contraction in the "perceived" money supply from not
only the fall in stock prices [e.g DJ 14,300 to DJ 8,500] but
more importantly, on a volume/dollar basis, the huge write down
of commercial bonds to 10 -20 cents on the dollar, with a fall in
rating from AAA [investment] to Ccc- [junk] is far out pacing
their attempt to re inflate the money supply. The same thing is
occurring in most major economies, e.g. UK, EEC, Japan.

As I have indicated before, this attempt to re inflate the
currency bubble is having minimal to negative effect because this
is not a liquidity crisis but a solvency crisis where many
[possibly most] of the major players are
operationally/functionally bankrupt, and no one in their right
mind would lend them any money expecting it to be returned
w/interest.

This will no doubt shock you George - and I'll be shocked that you are
shocked again - but these trades actually make sense for the buyers.
Hedge funds have been closing their books for the year and, in an attempt to
clean up their books, they've been ceaming the discount window. The rate at
the window, when inflation is considered, is -200 basis points and they get
to put up their worst crap. Some of
what they are getting face value for is really just worthless paper but most
of it is trading ( or not ) in the neighborhood of $0.60.
The quality is so low that they aren't even useful to meet margin
requirements.

The funds clean up their balance sheets and have locked in a profit of about
100 basis points for between 30 and 90 days at our expense.
That's one heck of a return when you consider that even the best run of the
funds are down ten percent.

JC