Counterparties: The debt crisis we’re wasting

May 30, 2012

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US and German government debt, the WSJ reports, is now “trumping gold as a safe haven”. (Please update the contents of your Doomsday Bunker.)

In fact, today a host of government bond yields around the world approached new lows. Yields for 10-year Treasuries hit 1.625%, a new record. As Joe Weisenthal notes, German, British, Finish, Swedish, Australian and Canadian borrowing costs have never been lower. German two-year bond yields even hit zero.

As one analyst said:”This is fear.” Edward Harrison, for his part, warns that low rates could force the US into a Japanese-style state of “permanent zero” that punishes savers and hamstrings banks. And Matt Yglesias wonders: If inflation-adjusted interest rates on US debt are actually negative, why bother collecting taxes at all?

While the world is willing to lend to the US for next to nothing, it’s worth revisiting the last time 10-year Treasury yields hit 60-year lows. In September, as America was fresh off the debt ceiling debacle, Martin Wolf reminded us that the market was not particularly worried about deficits, at least not in the US, UK and Germany. (Ezra Klein had similar things to say in August.) The bond market, Wolf wrote, is “loudly saying” we should

use cheap funds to raise future wealth and so improve the fiscal position in the long run. It is inconceivable that creditworthy governments would be unable to earn a return well above their negligible costs of borrowing, by investing in physical and human assets, on their own or together with the private sector.

Translation: Never let another country’s debt crisis go to waste.

And on to today’s links:

New Normal
Americans are increasingly spending their “prime working years” not working – WashPost

EU Mess
Europe “effectively lending Greece money so Greece can repay the money it borrowed from them” – NYT
Greece’s energy options: Iran, Glencore or blackouts – FT Alphaville
European leaders propose a “banking union” – WSJ

Federal lines of credit: Improving fiscal stimulus by extending credit directly to citizens – Miles Kimball

Taleb: A breakup of the euro is “not a big deal,” will create “a lot of fun currencies” – Bloomberg
Taleb “massively angry” at Bloomberg for quoting him out of context – Business Insider

Facebook and the sad case of ethical bankers – Bronte Capital
Investment banks’ function in an IPO is to equally satisfy or equally dissatisfy issues and investors – The Epicurean Dealmaker

A better way to restrict leverage and make banks pay for their own resolution – Deus Ex Macchiato

American Decline
When biking to school is against school rules – Bicycling

Data Points
Kleiner Perkins’ 112-page report on the Internet trends of 2012 – KPCB

Interstellar Domination
The Rockefellers and the Rothschilds have formed a strategic partnership – FT

Reversals isn’t really a link shortener anymore – The Atlantic Wire


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From TED’s post: “Because I and my peers will be the first ones to tell you you can get a better price in the M&A market. And we can help you with that transaction, too.”

This sounds a heck of a lot like “Heads I win, tails you lose.” Not a very good message for a banker to be sending in this day and age.

Posted by Curmudgeon | Report as abusive

The bicycling link is to the second page of the article. It was pretty confusing until I figured it out.

Posted by mwwaters | Report as abusive

The Kleiner Perkins slides argued that federal debt is a problem. Yes federal spending soared to offset the Great Recession. But the larger and longer trend is labor income falling as a share of national income. Interesting that the entrepreneurial types don’t want to mention that. It is probably related to declining unionization and the liberalized labor market – something they are very much in favor of, I suspect. Be careful what you wish for!

Posted by nyet | Report as abusive

It’s quite ironic that Clifton Park is the example in the bike-to-school article of a town with a progressive transportation policy! It’s a perfect example of suburban hell, so kudos to them for changing things for the better.

Posted by AngryInCali | Report as abusive

Curmudgeon- M&A bankers charge fees for the work they perform. If you think that sounds like “Heads I win, tails you lose,” in this day and age it would be better for you to just not comment.

Posted by johnhhaskell | Report as abusive

@JohnHH – Now that was a bit harsh and unfair to Curmudg, don’t ya’ think? He could have chosen his words better, but he and EpicD (in the cited piece) point out the inherent conflict of interest position that M&A bankers are in when it comes to IPO pricing. Neither of them got around to using the precisely the correct term, but the substance of it is accurate, isn’t it?.

Or, should I just keep my keyboard-mouth shut too?

Posted by MrRFox | Report as abusive

johnhhaskell – I like reading TED, and think he is largely honest about his profession and highly entertaining. It helps me learn about fields of which I would otherwise know nothing.

I interpreted the last bit of snark in his post as saying that “We’re the middleman in an IPO and will take our fee. If you would prefer not to mess with an IPO, we can help you get acquired. Oh, and we’ll take our fee for that too.” That’s where my ‘heads we win, tails you lose’ remark comes from.

Posted by Curmudgeon | Report as abusive