What is happening with your bailout monies?
Financial institutions taking bailout monies to play the yield curve. They are borrowing at essentially zero percent from the Fed, and buy treasury bonds yielding 4.5 and even riskier investments earning more, moving into a wide range of derivatives linked to interest rates which represent about 4/5 of all derivatives outstanding held by U.S. commercial banks, and in bonds and even stock.
They are borrowing cheap monies and speculating. We should follow France’s lead, which fired all the CEOs who did practice similar moves.
Remember what happened in Japan in the ’90s? It was printing yen in absurd quantities, and pegging interest rates close to zero, so monies flowed to other countries that had stronger fundamentals. We could become like them with an anemic growth.
If the market starts tanking again, will Washington swing back to the bailout mode? That is the big question. The results cleansing of debts and excesses will be very painful. If Uncle Sam’s borrowing cut shot up like Greece’s 60 percent the cost of car loans, mortgages, other products whose rates track treasury yields will be prohibitive.
This is what people who understand those ramifications are very worried about.