Today Feds had to give $5 bln at 2.17% with treasury collateral. Even after that it was a drain of $24 bln. But the most interesting is that the mortgage-backed sloshing flopped from $23 to $5 bln. The banks got stuffed with mortgages again, but they are still refusing to borrow above 2.17% with non-crappy collateral. This 87 bps below the target rate even after 125 bps of cuts. Frankly I’m puzzled.
I also want to say about consumer spending and prisoner dilemma. The government tells us all the time how they want us to spend more in those troubled times. At the same time it’s obvious that right now is a good time to actually curb your spending and pay off some debts. The employment, real estate and social security prospects are not so bright, putting aside at least 15%-20% of your income is a very good idea. The prisoner dilemma is that the economy will avoid a very hard lending only if we all start spending like mad, much more than before, but when some people defect tho ones who still spend are the real losers. In that situation defecting is much better. And you don’t need more proof that the administration is valuing its own political interests well above the interests of the real people. Not that it should surprise you
January 31, 2008 at 12:21 pm
The destiny of all the market is in one man hands. No, not Bernanke, Bernanke already did what he can.
His name is Wilbur Ross:
http://www.cnbc.com/id/22932650/site/14081545?__source=yahoo%7Cheadline%7Cquote%7Ctext%7C&par=yahoo
January 31, 2008 at 12:26 pm
From Wiki:
In the classic form of this game, cooperating is strictly dominated by defecting, so that the only possible equilibrium for the game is for all players to defect. In simpler terms, no matter what the other player does, one player will always gain a greater payoff by playing defect. Since in any situation playing defect is more beneficial than cooperating, all rational players will play defect, all things being equal.
Or in french, “sauve qui peut.”
There is an iterated version of the dilemma, which is not relevant because JUL6Pack has no memory. [or there would not have been a housing bubble to begin with.]
Of course, for this game to be relevant, JUL6Pack must have some proclivity to save, empirical evidence for which is lacking.
February 1, 2008 at 4:20 am
Do you think Mr. Ross will go for it?
February 1, 2008 at 10:11 am
Shankar Khadye – I don’t know. The Buffet man is simply starting a new company from scratch. Ross man would do that, but he may not have experience. If there is any tiny insurer anywhere that is not in trouble it’s better to buy it and grow into dominance.
February 1, 2008 at 1:13 pm
You know, you are absolutely on the mark! I never understood why Mr. Ross would want to get into an existing company like MBIA or Ambac.
Buffett’s strategy makes more sense. Just pick up the cherry (Muni Bonds Insurance).
February 2, 2008 at 1:11 pm
Shankar Khadye Wrote:
“Buffett’s strategy makes more sense. Just pick up the cherry (Muni Bonds Insurance).”
Buffett needs to be careful. Muni’s are almost always financed using tax revenues. With the real estate prices falling, rising unemployment, tax revenues are on the decline. I suspect a lot of cities and towns bought the real estate bubble have significantly increased there minimum budget outlays by over expanding their infrastruture. Take California with now has a 10+ billion budget deficit.
Buffett’s challenge is to pick the cherries out of a box of lemons.