The Great Debate UK

from The Great Debate:

“Risk free” rate going way of free lunch

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James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

One of the many comfortable but unreliable certainties now coming unglued is the idea that U.S. Treasury interest rates are the paramount benchmark, a measure of "risk free" investment, an idea at the heart of finance.

In the old days we quaintly believed that U.S. government debt yields represented a benchmark against which all other types of risk taking could be measured. The 30-year yield, later supplanted by the 10-year, used to be called the most important rate in the world for just that reason. All other risk taking began from this handy jumping off point and all capital allocation decisions used it as an implicit or explicit input.

That role of the benchmark of benchmarks, which greases the wheels of finance making it more "efficient" but more prone to spectacular error, is now under attack from a number of directions.

In retrospect, it seems clear that artificially low interest rates, due in large part to Treasury purchases by China seeking to keep its own currency and exports competitive, helped to turbo charge risk taking during the boom.

from The Great Debate:

Banking spins destruction myth: Hoocoodanode?

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James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Just as every society has a creation myth, banking is now busily writing a destruction myth that seeks to explain and soothe in a world torn to its foundations.

The myth, as expounded by regulators, bankers and their various service providers, is that we were hit by a perfect storm, a 1,000-year flood so unpredictable that we can't possibly be held accountable for it. An act of god, rather than the folly of man.

from The Great Debate:

Credit cards unkindest cut for U.S. consumers

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James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Government intervention or not, banks will be cutting up America's credit cards at an unprecedented rate, with grave implications for the economy and company profits.

The U.S. Federal Reserve last week added more nutrition to its alphabet soup of rescue programs when it unveiled the Term Asset-backed Securities Loan Facility (TALF), under which, among other things, it will lend up to $200 billion to investors in securities backed by credit-card, auto and student loans.

from The Great Debate:

Even UK guarantee can’t stop housing crash

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James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Britain needs to reflate its mortgage markets to save its economy and its banks. Problem is, few want to borrow and there is precious little money to lend.

British property prices are down about 15 percent in a year and mortgage approvals are down 52 percent. Given the freeze in the securitization market and the scarcity of savings in Britain, new net mortgage lending may even fall below zero in 2009, according to James Crosby, former head of UK mortgage bank HBOS, who authored a government report on the mortgage market.

from The Great Debate:

Fighting deflation globally ain’t easy

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James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

With the U.S., Japan and Britain -- nearly 40 percent of the global economy -- facing the threat of deflation, it's going to be just too easy for one, two or all three of them to get the policy response horribly wrong.

The global economy is so connected, and our experience with similar situations so limited that the scope for error is huge.

from The Great Debate:

Petrodollar drought another blow to banks

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James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Banks in Europe and Britain, and their unfortunate would-be borrowers, face another blow as plunging oil prices tighten the spigot of petrodollar deposits.

Billions of dollars worth of funds from oil exporting nations have made their way into banks from Zurich to London in recent years. These inflows helped banks withstand credit crisis losses and, given much of the money was in dollars, was a source of dollar liquidity during recent money market difficulties.

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