Opinion

James Saft

Promises, lies and the interbank market: James Saft

Oct 2, 2012 04:08 UTC

(James Saft is a Reuters columnist. The opinions expressed are his own)

By James Saft

(Reuters) – Maybe it is time to accept that there is no such thing, really, as a free and independent inter-bank lending market.

That’s because a genuine bank loan market, at least one which would be allowed by regulators and participants to exist, must be founded on some combination of good collateral, which is vanishingly scarce, and faith, which has gone away on a long trip.

Understanding why puts us a bit closer to reckoning with exactly how false and officially supported financing markets are, a realization which manages to be both terrifying and strangely reassuring.

Interbank lending, the lifeblood of financing, is, where it is functioning, increasingly based on doubtful or illiquid collateral swapped among banks which are often acceptable only because they have government backing and access to central bank funding. This is particularly true in the euro area, where the European Central Bank seems to go ever further to support bank liquidity.

Against this background, the proposed reforms of the London Interbank Offered Rate (Libor) take on a kind of bitter irony, even necessary and well-intentioned as they are.

Market whistles merrily as Romney sinks: James Saft

Sep 19, 2012 20:20 UTC

Sept 19 (Reuters) – Mitt Romney’s chances of capturing the
White House dwindle almost daily and financial markets seem not
bothered a bit.

Not only have equity markets been buoyant and government
debt stable but also both markets show every indication of
paying more attention to the fate of Europe and to extraordinary
central bank measures than to the election.

Romney’s chances of defeating President Barack Obama in
November are down to 33 percent, according to wagers placed
through Dublin-based online betting exchange Intrade, down from
44 as recently as Aug. 27. Since then the S&P 500
has gained 4 percent, and stands 10 percent higher than
late-June levels. The interest the U.S. must pay to borrow money
for 10 years has risen to a still historically low
1.78 percent from 1.64 percent in the same period.

Column: Banks, bailouts and texting and driving: James Saft

Sep 18, 2012 05:01 UTC

(James Saft is a Reuters columnist. The opinions expressed are his own.)

By James Saft

(Reuters) – The idea that a brush with death will change a lucky escapee’s priorities apparently does not apply to bailed out banks.

While you might be pulled from the smoking wreckage of your car and decide to stop texting while driving, the banks which got government injections of capital during the financial crisis concluded, it would seem, that the problem was that they were not pressing the buttons fast enough.

A new study by the Bank for International Settlements, the so-called central banks’ central bank, shows that not only did the bailed out banks not cut back on risk in their lending into the syndicated loan market after being defibrillated by their governments, they actually increased it relative to the market and banks which did not get rescued. here This is both astounding and totally predictable. Astounding because it was so clear that those risks were not just foolish but destructive. Predictable because of course the banks realized that they had not been just lucky but had been given a special exemption from death which will be very hard to revoke.

Banks, bailouts and texting and driving: James Saft

Sep 18, 2012 05:01 UTC

Sept 17 (Reuters) – The idea that a brush with death will
change a lucky escapee’s priorities apparently does not apply to
bailed out banks.

While you might be pulled from the smoking wreckage of your
car and decide to stop texting while driving, the banks which
got government injections of capital during the financial crisis
concluded, it would seem, that the problem was that they were
not pressing the buttons fast enough.

A new study by the Bank for International Settlements, the
so-called central banks’ central bank, shows that not only did
the bailed out banks not cut back on risk in their lending into
the syndicated loan market after being defibrillated by their
governments, they actually increased it relative to the market
and banks which did not get rescued.This is both astounding and totally predictable. Astounding
because it was so clear that those risks were not just foolish
but destructive. Predictable because of course the banks
realized that they had not been just lucky but had been given a
special exemption from death which will be very hard to revoke.

Crystal balls vs. bag lunches

Sep 13, 2012 16:25 UTC

By James Saft

(Reuters) – Few advisers want to say it, and no client wants to hear it, but your best bet isn’t obsessing over funds and strategies but simply raising your savings rate.

The investment industry – and clients – are intensely focused on how to maximize returns, with much ink, brain power and tears spent on trying to divine which fund to choose and what strategy to adopt.

While this is entirely appropriate, and sometimes even fruitful, it is also, in many ways, a self-defeating diversion.

Column: As Asian miracle wanes, U.S. may wax: James Saft

Sep 11, 2012 04:03 UTC

(James Saft is a Reuters columnist. The opinions expressed are his own)

By James Saft

(Reuters) – Asia’s economic miracle may be waning just as the foundations for an eventual resurgence in the U.S. are being laid.

Asia, China in particular, may be bumping up against the limits of a capital-intensive growth model predicated on cheap labor. To counteract this, countries like China may have to adapt legal, political and even academic practices which could up-end existing power relationships.

At the same time, technology, geology and new manufacturing techniques may in combination give U.S. growth an energy and innovation boost.

As Asian miracle wanes, U.S. may wax: James Saft

Sep 11, 2012 04:01 UTC

Sept 11 (Reuters) – Asia’s economic miracle may be waning
just as the foundations for an eventual resurgence in the U.S.
are being laid.

Asia, China in particular, may be bumping up against the
limits of a capital-intensive growth model predicated on cheap
labor. To counteract this, countries like China may have to
adapt legal, political and even academic practices which could
up-end existing power relationships.

At the same time, technology, geology and new manufacturing
techniques may in combination give U.S. growth an energy and
innovation boost.

ECB death pact good for risk

Sep 6, 2012 18:05 UTC

By James Saft

(Reuters) – It may or not prove to be good policy, but the ECB’s decision to stand as effective lender of last resort is a pretty good reason for investors to take on risk.

The ECB on Thursday announced a new program to buy, under certain circumstances, unlimited amounts of euro zone bonds, a move intended to allow it to regain control over monetary policy in the euro zone’s periphery and to serve as an effective circuit breaker against sovereign financing panics.

The plan, slammed by Bundesbank chief Jens Weidmann as “tantamount to financing governments by printing banknotes,” will target 1-3 year bonds and will be sterilized, meaning that the amount of money in circulation will remain the same.

Negative rates and pension pain

Aug 14, 2012 04:04 UTC

By Jim Saft

(Reuters) – One of the overlooked victims of the fall and fall of interest rates are corporate pension plans which are facing a ballooning liability even as returns stay tepid.

That’s because market rates play a key role in valuing pension plan liabilities, and the lower they go the tougher things get for underfunded plans.

This may, over time, become a real issue for equity markets, as investors realize that purchases of shares bring not just a right to benefit from future streams of earnings but also the responsibility to meet potentially huge future streams of retiree payouts.

The agony of rebalancing

Aug 2, 2012 20:49 UTC

By James Saft

(Reuters) – Portfolio rebalancing is one of those things which sounds sensible until you actually have to do it.

At which point, it usually just seems terrifying.

Portfolio rebalancing — the art of selling what has gone up and buying what has gone down — has a good track record along with lots of research backing up the assertion that it, in aggregate, will improve investors’ portfolio returns.

But the most crucial and high-value opportunities to rebalance usually come at exactly the kinds of times when even rational investors feel like hiding under their desks. Imagine a market crash, where you lose 8 or 10 percent of your portfolio and then, being a sensible investor, realize that right now is the time to sell the bonds that have held their value and load up on equities.

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