Opinion

James Saft

Government shutdown may kill corporate debt

Apr 14, 2011 16:03 UTC

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

If you are worried about the impact of a U.S. government shutdown on markets, you might just want to look past Treasuries and keep a weather eye on corporate bonds.

Investors will have good reason to dump U.S. corporate debt and shares in the event of a shutdown. Given that there are $29 trillion of corporate securities outstanding compared to only $9 trillion of Treasury debt in public hands some of those sales could flow into supposedly safer longer-term Treasuries even as corporate yields burst higher.

President Barack Obama proposed on Wednesday cutting the deficit by $4 trillion over 12 years, less than a week after Democrats and Republicans struck a last-minute stopgap deal to temporarily avert a government shutdown. Even so, the political divisions are deep and there are ample opportunities in coming months for impasse to lead on to nonpayment of bills, the sort of sort-of default that would doubtless send markets reeling.

“Markets will begin to anticipate a crisis,” said Rob Dugger, of Hanover Investment Group, a former partner in legendary hedge fund firm Tudor Investments.

“If government is forced into rapid adjustment it will be the private sector that gets hurt.”

End Washington-Wall St revolving door

Dec 16, 2010 14:03 UTC

The revolving door between government and Wall Street is wrong, antithetical to both democracy and capitalism and ought to be stopped.

For the second time in two weeks a high-ranking recent U.S. public servant has traded a position of influence in the corridors of power for a massive paycheck working for an institution that owes its very existence to government largess.

This time it is Theo Lubke, who has transitioned smoothly from heading the New York Federal Reserve Bank’s derivative regulation effort to working for Goldman Sachs, where he can be expected to, well, help it do well out of regulation, current and future.

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