The Great Debate UK
Lenders do not seem to be good learners. To judge from the credit market, the 2008-9 crisis might never have happened. Perhaps this is the healthy fading of traumatic memories, but the current buying frenzy looks more like a return to an old bad habit.
It's hard to find debt that investors don't like. They are snapping up paper from solidly rated companies such as Wal-Mart and Anheuser-Busch InBev, and from still bankrupt Lyondell Chemical. The enthusiasm has reduced the spread on bonds dramatically.
In the panic-stricken days of March 2009, investment-grade U.S. corporate debt yielded 5.4 percentage points more than U.S. Treasuries. That spread is now just 1.5 percentage points, according to Barclays Capital. For junk bonds, the spread has declined from 17 to 6 percentage points.
The combination of thin risk premiums and the Federal Reserve's near-zero overnight interest rates makes for unimpressive yields. Barclays clocks the average yield on high-grade bonds at 4.5 percent, which is two percentage points below the 20-year average.
Goldman Sachs CEO Lloyd Blankfein has an image problem on his hands.
The most ardent critics of his firm are likening it to a blood-sucking vampire, while others simply see the Wall Street investment bank as a greedy and ruthless financial titan. But there is a way for Blankfein to start turning public opinion around, and that involves a quick buyout of ailing mid-market lender CIT Group, which provides financing to some retailers, manufacturers and aviation operators.
While a collapse of New York-based CIT would not pose the kind of systemic risk that last September's bankruptcy of Lehman Brothers did, the lender's sudden disappearance from the market would make it even more difficult for some small- and mid-sized American companies to finance their operations.