Published by clickbroker.blogspot.com.
The “got-you” model of investment banking made famous by Goldman Sachs (GS) is reaching obsolescence for the big retail banking franchises according to JP Morgan Chase (JPM) and Bank of America (BAC). With financial reform each customer will now have to carry their own weight. No longer will the financially sloppy, disadvantaged or simply naïve be tricked into paying high fees to subsidize the financially conscientious.
The Redistribution Model of Retail Banking
Trouble with a Committed Extended Period of Time
Published by clickbroker.blogspot.com.
Bill Gross is developing a chorus in calling for Federal Reserve Chairman Bernanke to commit a time frame on extraordinary accommodative rates for an extended period of time. The longer the commitment, the better. The theory they are selling is that investors will start absorbing toxic assets if they are assured of low cost funding for a specific time frame.
This argument has many flaws. In fact, a Fed commitment to lower rates for a specific period of time actually reduces the risk in the carry trade of the world’s safest assets. The greatest risk in a leveraged position in Treasuries is changes in the cost of funding, not credit quality. Therefore, guaranteeing the cost of funding would actually move more money to the risk-free trade and away from productive capitalism.
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