tag:blogger.com,1999:blog-5154389358831836369.post6066389210019494876..comments2024-03-28T02:00:36.854-04:00Comments on The Slack Wire: Don't Touch the YieldJW Masonhttp://www.blogger.com/profile/10664452827447313845noreply@blogger.comBlogger21125tag:blogger.com,1999:blog-5154389358831836369.post-61506214851810518612021-09-09T09:37:29.792-04:002021-09-09T09:37:29.792-04:00Thanks for sharing this article on your website th...Thanks for sharing this article on your website this is very help full for all. <a href="https://instantquotescarinsurance.8b.io/comprehensive-car-insurance.html" rel="nofollow">Visit</a>Derek Murphyhttps://www.blogger.com/profile/12454941906287020762noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-5677867567151915072020-11-25T18:57:43.419-05:002020-11-25T18:57:43.419-05:00Hi there, I found your site by way of Google whils...Hi there, I found your site by way of Google whilst looking for a comparable matter, your web site got here up, it seems good. 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At any rate will look far more into it and decide personally! <a href="http://www.magruderagency.com/" rel="nofollow">Insurance Brandon FL</a><br />Rehinnahttps://www.blogger.com/profile/02924226684723511707noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-56722645343892111062016-02-28T01:29:03.977-05:002016-02-28T01:29:03.977-05:00Love what you're doing here guys, keep it up!....Love what you're doing here guys, keep it up!.. <a href="http://barat-group.co.il/?p=251" rel="nofollow">אפשרות הלוואה לעסק</a><br />Masoodhttps://www.blogger.com/profile/04095015619118883200noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-27792527274829365882013-05-18T01:20:41.790-04:002013-05-18T01:20:41.790-04:00In the 1950s-1970s, deposit rates were regulated, ...In the 1950s-1970s, deposit rates were regulated, so they were completely decoupled. Now, they are coupled, but not so tightly as to be ignored. <br /><br />But it is true that a sharp hike in rates will cause many borrowers to be unable to roll over loans and default, hurting bank profitability, while a decline will tend to reduce defaults. The canonical example would be Volcker's hikes and the subsequent latin american debt crisis.<br /><br />But, that is not a trade off because one factor is the level of rates while the other is the rate of change. We can say that the best environment for banks are high rates that are decreasing, and the worst environment would be low rates that are going up.<br />rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-74354928312604579852013-05-17T18:56:41.396-04:002013-05-17T18:56:41.396-04:00A fall in the Fed Funds rate reduces the profitabi...A fall in the Fed Funds rate reduces the profitability of deposit-taking, and increases the profitability of lending, with the strength of both effects depending on how tightly linked the relevant market rates are to the Federal Funds rate.<br /><br />In the 1950s-1970s, the former effect dominated, and low rates lowered bank profits. Since the 1980s, the latter effect has dominated, and low rates increase bank profits.<br /><br />Right?JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-34442290442899308532013-05-17T18:31:45.179-04:002013-05-17T18:31:45.179-04:00rsj, I didn't realize that the "normal&qu...rsj, I didn't realize that the "normal" bank deposit spread was so large (2-3%).<br /><br />So rates need to rise quite a bit to restore the traditional profitability of bank deposits.<br /><br />(This shouldn't be confused with the profitability of loans, which is a different issue and I assume more important to overall bank profitability).<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-76608585238530596012013-05-16T06:51:27.309-04:002013-05-16T06:51:27.309-04:00http://research.stlouisfed.org/fred2/graph/?g=isL
...http://research.stlouisfed.org/fred2/graph/?g=isL<br /><br />MZM is not that tightly coupled.rsjhttps://www.blogger.com/profile/05489955485750918419noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-62887564985578658832013-05-03T03:49:00.017-04:002013-05-03T03:49:00.017-04:00On this topic today at Vox
http://www.voxeu.org/a...On this topic today at Vox<br /><br />http://www.voxeu.org/article/measuring-reach-yieldLuis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-883822217107362732013-05-03T02:34:32.186-04:002013-05-03T02:34:32.186-04:00The thing I find unsatisfactory about the reaching...The thing I find unsatisfactory about the reaching for yield story is that it is a story of banks choosing high risk loans <i>over</i> low risk loans. But I've heard very little about the second half of the story -- tell me about all those who should be in more debt, want to be in more debt, but couldn't go into debt because, though they are low risk, banks were passing them over for higher risk debtors that promised potentially higher rewards. Is that really the situation we were or are in?<br /><br />My impression is more that banks were taking on higher risk loans because they were having no trouble filling the low risk loans, and were able to lend more on top of that. And what happens when banks would like to be lending more but the most promising debtors have been given loans already? Rates drop. The fact that rates could be this low without causing inflation is a sure sign that we have lots of saving available to be lent that we just can't discourage and are having difficulty finding the right people to lend it to to create demand. So I think low rates are related to the problem, but they are a symptom of the problem not the cause.Eric Lhttps://www.blogger.com/profile/17688525347746547529noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-44488314414254347862013-05-03T00:12:21.180-04:002013-05-03T00:12:21.180-04:00Hi Merijn!
Thanks for the comment. You're alw...Hi Merijn!<br /><br />Thanks for the comment. You're always a reassurance to me that I'm not crazy.<br /><br /><i>About the increasing spread post 1980: seems to have been an international phenomenon (graph 3, difference between average mortgage rate, new business and government bond rate):http://rwer.wordpress.com/2013/04/27/interest-rates-the-long-run-netherlands-1590-2012-3-graphs/</i><br /><br />Yes, that's a great post, I'd meant to comment on it. The long run stability of <b>nominal</b> interest rates is really an important fact.<br /><br /><i>The whole idea behind low rates is of course the rape and plunder of the rentier with the intention to force him or her to start to make real investments (or to consume)instead of making financial investments. When people are clamouring about this it only shows that low rates are finally doing their job.</i><br /><br />Exactly! An interesting fact along these lines, which I've never seen properly discussed, is that the biggest investment boom in postwar US history came in 1977-1981, when capitalists were supposedly doing terrible. And they were doing terrible: but holding real assets was less bad than holding money. I think there's an important lesson here. <br /><br /><i>Well, I suppose this is part of your Ph.D....</i><br /><br />Sort of. But the real story is that I wrote this three weeks ago, right after the linked DeLong post, and just for some reason didn't put it up. And then a couple days ago, Mike Konczal asked me, "Hey, what happened to that thing you were writing about Jeffrey Stein and reaching for yield?" And I was like, oh, right, that.<br />JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-7948146115753750322013-05-03T00:05:01.621-04:002013-05-03T00:05:01.621-04:00Yes, I calculated it from the numbers reported the...Yes, I calculated it from the numbers reported there. Nothing complicated, but not worth going through in this comment box. Email me if you want to discuss -- jwmasonnyc@gmail.com.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-17717057878273144082013-05-02T10:55:00.481-04:002013-05-02T10:55:00.481-04:00Josh, I'm not finding that interest data at th...Josh, I'm not finding that interest data at the link given. Did you compile it from the data there?Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-91993236771857975882013-05-01T19:51:39.276-04:002013-05-01T19:51:39.276-04:00http://www.ici.org/pdf/per19-03.pdf
Refer to figu...http://www.ici.org/pdf/per19-03.pdf<br /><br />Refer to figure 11 on page 11. From 2008-2012 money market funds lost at least $12 billion of profits due to near-zero rates.<br /><br />Again, my point is not about "low" rates but about close to 0% rates. It would only take a small rate increase to restore almost all the profit.<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-17139481792020070872013-05-01T13:50:44.989-04:002013-05-01T13:50:44.989-04:00Well, I suppose this is part of your Ph.D....
The...Well, I suppose this is part of your Ph.D....<br /><br />There is a chance that 1 and 2 might be of some help.<br /><br />(1) About the increasing spread post 1980: seems to have been an international phenomenon (graph 3, difference between average mortgage rate, new business and government bond rate):http://rwer.wordpress.com/2013/04/27/interest-rates-the-long-run-netherlands-1590-2012-3-graphs/<br /><br />(2) For the Netherlands, the Centraal Bureau voor de Statistiek calculated (basis: national accounts)that low funding costs implied a whopping 1% a year of GDP transfer to the banks, in 2009. Must have been about the same in 2010-2012. http://www.cbs.nl/nl-NL/menu/themas/financiele-zakelijke-diensten/publicaties/artikelen/archief/2011/2010-08-16-twbankwezen-tk12.htm Don't be sorry for the banks.<br /><br />(3)The whole idea behind low rates is of course the rape and plunder of the rentier with the intention to force him or her to start to make real investments (or to consume)instead of making financial investments. When people are clamouring about this it only shows that low rates are finally doing their job.<br /><br />Merijn KnibbeAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-49214555443612404362013-05-01T11:22:43.572-04:002013-05-01T11:22:43.572-04:00thanks JW
minor quibble - if I am a rentier and m...thanks JW<br /><br />minor quibble - if I am a rentier and my claims on society consist of corporate stocks, then low rates have been good for me because they've driven up stock prices. Although I'd better sell up, cash in, and buy that Caribbean island I've been eyeing up, because higher stock prices mean a lower dividend yield and expected future capital gains, all else equal. Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-69421988762966892652013-05-01T11:03:00.076-04:002013-05-01T11:03:00.076-04:00are some traders (and others characters) at banks ...<i>are some traders (and others characters) at banks paid not on the basis of the spread, but in some sense on the gross return they generate?</i><br /><br />I don't know -- the specifics of bank compensation aren't something I know much about. Altho I suppose if you can think of some kind of perverse incentive, there is probably bank paying people based on it.<br /><br /><i>I suppose actors such as pension funds, hedge funds etc. are going to search for yield, as they always do. Is there anything more dangerous, w.r.t financial stability, about their behaviour when yields are low?</i><br /><br />Right, financial institutions always want the highest yielding assets, adjusted for risk. What's different about low rates? The argument here is that there is some floor on acceptable returns. If you fall below that you're screwed, regardless of how far below -- you can't be a little bit bankrupt if you're a firm, or a little bit fired if you're a trader. So when your expected return falls below the floor, you switch from being risk-averse to being risk-loving. This was definitely a real and important phenomenon in the S&L crisis (where people talked about thrifts "gambling for resurrection") but I don't think it's happening at banks now, for the reasons giving here -- it is not actually the case that bank returns are low. <br /><br />As I said to Max above, one could in principle make a stronger case for insurance and pension funds, whose liabilities are more or less fixed, but I don't think there's any reason to think this sort of thing is happening there either.<br /><br /><i>Have you looked at this "negative carry" argument, put forward by FT Alphaville, that threatens to "impair bank profitability forever"? I won't try to summarize it, because I don't fully understand it</i><br /><br />I don't understand it either. I'm not saying there isn't anything there, but I'm not sure there is.<br /><br /><i>Finally, you mention the idea that low rates deprive owners of financial assets (the rich ) of their accustomed returns. But one also often sees the argument that accommodative monetary policy drives up asset prices and hence benefits the rich. If anything, I'd say claims that QE etc. helps the rich are more common that claims low rates hurt the rich. I suppose both are true - it depends what kind of assets you own and how you get your income (capital gains, interest income etc.).</i><br /><br />Right! This is the really important part. Low rates, like inflation, are bad for rentiers -- for the rich whose claims on society take purely financial form. For "productive capitalists" -- the rich whose claims are tied up in specific enterprises -- low rates, like inflation can be good. But both groups of rich are threatened by sustained high levels of activity that drives up wages, and both *can* benefit from a depressed activity if it allows for a reduction in wages (including social wages). I think that is the real agenda behind a lot of this stuff, at least unconsciously.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-68212344349958802242013-05-01T10:47:02.417-04:002013-05-01T10:47:02.417-04:00Yeah, no sale.
First of all, what I am looking at...Yeah, no sale.<br /><br />First of all, what I am looking at is the average interest rate on all bank loans, on all bank liabilities, and on interest-bearing bank liabilities. And it is just a fact that over the past two decades, the average interest rate on bank borrowing is more tightly correlated with the Fed Funds rate than the average interest rate on bank lending is.<br /><br />It should be possible to do the same exercise for the financial sector as a whole. I don't have time now, but hopefully will in the next couple of weeks and will report the results here when and if.<br /><br />But I'm pretty sure it is not going to be the case that MMMFs have lower spreads when rates are low -- their deposit rates are very tightly linked to the policy rate -- more tightly than the commercial paper they buy. Their problems are different.<br /><br />If you want a better version of this, look at pension funds and insurance companies, whose liabilities are really fixed. But I don't think that's what this is really about either. I think the real "victims" here are the ultimate owners of financial wealth.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-11331225564411620332013-05-01T09:12:52.434-04:002013-05-01T09:12:52.434-04:00some assorted thoughts:
are some traders (and oth...some assorted thoughts:<br /><br />are some traders (and others characters) at banks paid not on the basis of the spread, but in some sense on the gross return they generate? This arrangement might make sort of sense if bank managers think "the cost of funding is what it is, now I want my traders to go out and max their returns"<br /><br />I suppose actors such as pension funds, hedge funds etc. are going to search for yield, as they always do. Is there anything more dangerous, w.r.t financial stability, about their behaviour when yields are low?<br /><br />Have you looked at this "negative carry" argument, put forward by FT Alphaville, that threatens to "impair bank profitability forever"?<br /><br />http://ftalphaville.ft.com/2012/07/04/1071311/the-negative-carry-universe/<br /><br />I won't try to summarize it, because I don't fully understand it, but it looks like a version of the low interest rates are bad argument. <br /><br />Finally, you mention the idea that low rates deprive owners of financial assets (the rich ) of their accustomed returns. But one also often sees the argument that accommodative monetary policy drives up asset prices and hence benefits the rich. If anything, I'd say claims that QE etc. helps the rich are more common that claims low rates hurt the rich. I suppose both are true - it depends what kind of assets you own and how you get your income (capital gains, interest income etc.). Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-14794688909803713322013-04-30T18:05:13.054-04:002013-04-30T18:05:13.054-04:00Effectively a lot of deposits are "non intere...Effectively a lot of deposits are "non interest bearing" in the 0%-1% range. That's because deposit rates bottom out at 0%.<br /><br />So while "low" rates don't hurt profits, close to 0% rates do hurt. The biggest complainers are money market funds (which are banks, though with a different regulatory structure than "real" banks), because deposits are their only business.<br />Maxnoreply@blogger.com