HOW SUMMERS ROCKED MARKETgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
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HOW SUMMERS ROCKED MARKET
By JOHN CRUDELE
A little trick that the Clinton administration played last week on the Federal Reserve and the bond market cost Wall Street billions of dollars.
And the chaos that was started last week cost Washington billions yesterday when it encountered the worst 30-year bond sale in at least 17 years. That wasn't Treasury Secretary Larry Summers' intention when he upstaged the Fed's interest rates hike by announcing that 30-year bond sales would be curtailed and eventually phased out. But that's exactly what happened.
Then, rubbing salt into the big brokerage firms' wounds, Summers riled the markets again this week when he tried to correct his goof. The results? More big losses.
The notion of junking 30-year bond sales is ludicrous, of course.
There is no federal budget surplus. Bureaucrats like Summers -- desperately trying to keep rates down and the bubble inflated -- are hoping to reduce government borrowing from private citizens by raiding the Social Security trust fund.
The trick is simple: Cut the issuance of 30-year bonds and leave IOUs -- which are no different than bonds -- in the retirement trust in place of the cash taken.
That may or may not work for a while. But it definitely won't work when Social Security needs its dough back and the government will have to do an enormous amount of extra borrowing from private citizens, over and above what's needed to run the country.
But that'll be another administration's problem. While Summers might be a hero in this White House for his bold and completely unexpected announcement the day of the rate hike, he might want to stay away from Wall Street for a while.
"The losses are in the billions," said one insider who surveyed the damage right after the remarks made by the unsavvy successor of Wall Street insider Robert Rubin. "Goldman won't go bankrupt. But a lot of people lost their bonuses for the year, and some people will be fired."
Goldman and all the other investment banks on Wall Street have had quite a good run during the Clinton administration. And in bubble-land you don't go poking your finger at anyone lest the air start coming out of every investment.
So those skunked by Summers will probably brood in private.
Michael Belkin, a Fed watcher who runs Belkin Ltd., says Summers not only "has earned the enmity from burned fixed income traders on Wall Street," but that his bond buyback "could prove the bane to the overheating U.S. economy."
By tricking the bond market into pushing long-term interest rates lower, Summers will probably force the Federal Reserve to institute more interest rate hikes than would have been needed to slow inflation.
-- Farouk Madjurian (firstname.lastname@example.org), February 11, 2000
"And in bubble-land you don't go poking your finger at anyone lest the air start coming out of every investment."
That's got to be one of my all time favorite quotes of late.
-- Guy Daley (email@example.com), February 11, 2000.
The current Secretary of the Treasury is a total doofus, and the bond market makers got their revenge this week by staying away from the auction. Summers should be fired for total incompetance. Or at least, would someone put duct tape on his too big mouth.
-- Les (firstname.lastname@example.org), February 11, 2000.
Lets keep Summers in office! That may bring some reality into the markets and we may just see a sane market as a result. after the crash of course.
-- Scooter (email@example.com), February 11, 2000.