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The Fed & Natural Selection


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CIT managed to restructure its debt with its bondholders over the weekend, and bought itself some time.  I'm just wondering exactly why and how the government is deciding on what businesses to save by bailing them out, and which ones they are telling that we can't help you so you're on your own?  Let the conspiracy theories propagate!  Cheers!



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CIT has just demonstrated that the fed is now letting players go. Given the hard evidence that stimilus spending has now taken hold, & the discussion of 'exit strategies' - one or two failures is actually desirable.


Q2 bank earnings are dangerously skewing the market. Deduct interest for the interest free TARP funds, & write-down marketable securities by 10-15% for the 'funny' valuations - & the real position is hugely different. The cleanest way to 'exit' is to issue T-Bills (repaid TARP funds buying bills) & start putting interest expense on the bank P&L.


The Cdn regulatory system has been repeatedly held up as a 'guiding' model. Banks require a licence (charter),the ongoing operation is at the discretion of one authority (ie: the pleasure of her majesty), and you get a government sanctioned monopoly. You do as your told or the authority triggers a run on your bank, there are no precedents/appeals/regulations - just 'her majesty is displeased'. Applied to the US, & its goodbye lobbying.     


The fed/treasury isn't 'protecting', they're simply preparing the next steps






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"But for some reason (and perhaps someone could share their opinion) the Fed and Treasury have been protecting bondholder's claims at all costs."


John Hussman has been railing about this for some time... I read somewhere that we will not see hyperinflation because the bond market will not allow it. I also read that hyperinflation has not happened in an ecomony with a strong bond market (i.e. the article said Germany back in the 20's did not have an efficient mature market). I wonder if the bond market is not being treated with kid gloves because they really DO rule the roost.

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