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Three years after Wall Street’s penchant for financial engineering, exotic derivatives and too-complicated-to-be-true assumptions brought the world economy to its knees, the U.S. political class crafted, and then partially solved, its very own crisis.

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Atlantic International Partnership Latest News was created solely for the purpose of finding out the most effective optimizing strategy there is.

Do not mind the randomness of this blog’s contents. We believe this will better the system of finding relevant search results by people using the gift called Internet.

Live | Social Bookmarking .Net

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Three years after Wall Street’s penchant for financial engineering, exotic derivatives and too-complicated-to-be-true assumptions brought the world economy to its knees, the U.S. political class crafted, and then partially solved, its very own crisis.

Atlantic International Partnership Headlines:Washington’s Haggling Left Wall Street Dangling

http://news.altlantic-internationalpartnership.com/
Three years after Wall Street’s penchant for financial engineering, exotic derivatives and too-complicated-to-be-true assumptions brought the world economy to its knees, the U.S. political class crafted, and then partially solved, its very own crisis.

The game of “Deal or No Deal” played by Washington as the deadline to raise the debt ceiling drew perilously near will have long-lasting effects on markets and investors.

As one top Wall Street executive said when the talks dragged on late last week, “This may be a mess completely manufactured by politicians but, boy, they did a hell of a job!”

Even though a debt agreement was reached, the stock market fell on Monday, adding to a losing streak that took the Dow Jones Industrial Average from within a whisker of a new record to a one-month low last Friday.

And that is unlikely to be the end of the story. You just don’t push the world’s largest economy and the most liquid financial markets to the brink of disaster without causing damage somewhere.

Unlike the political arena, where there is always time for one more back-room resolution regardless of how entrenched positions have become, when money is at stake, actions lead to concrete reactions.

For starters, the prospect of a downgrade of U.S. debt will linger over the markets for as long as the credit rating firms sit on the fence—a phenomenon Pimco’s Bill Gross has dubbed “Debt Man Walking”—while the stuttering domestic economy remains investors’ most pressing long-term concern as shown by Monday’s poor manufacturing data.

Other thorny issues lurk in the weeds.

A fundamental difference between the summer of 2011 and the run-up to the collapse of Lehman Brothers in 2008 is that, this time, Wall Street and American corporations had time to prepare for the unthinkable. And prepare they did.

While politicians haggled, money-market funds, which pride themselves on being one of the safest investments around, rushed to sell securities to raise billions of dollars. They used part of the proceeds to pay higher-than-usual redemptions requests from jittery investors and parked the rest in cash.

Such moves reduced the amount of short-term loans made by money-market funds to companies and banks in the commercial-paper market, gumming up an important pipe in the financial edifice. Another crucial piece of plumbing—the “repo” market used by banks and investors for overnight funding—also suffered with interest rates rising to reflect the nervousness coursing through the system.

U.S. companies large and small also chose an extraordinary playbook, stashing cash in the corporate equivalent of mattresses—bank accounts that yield no interest but are insured by the federal government (a paradoxical vote of confidence given the shenanigans that were taking place in Washington).

Banks, for their part, looked at the influx of deposits with mixed feelings.

On one hand, the unexpected bounty provides them with cheap funding that can be put to work in the form of loans. At the same time, the new deposits swelled their liabilities (deposits are counted as liabilities because they will one day return to their owners)—raising the unwelcome possibility that regulators will force them to add more capital to their balance sheets.

One executive even suggested that if this “run to the bank” continues, lenders might consider introducing negative interest rates on deposits (savers would have to pay a fee to park the money in the bank) to keep money out.

Even if that proves far-fetched, unwinding the substantial capital movements triggered by Washington’s game of Russian roulette will prove costly and time-consuming—if it happens at all.

My reporting, for example, suggests that money-market funds are quite happy to keep a large portion of their assets in cash even after the debt-ceiling deal, partly to deflect criticism that they had taken on too much risk and partly because they are genuinely concerned about the future.

A prudent course of action perhaps, but one that could starve users of the commercial-paper market, chief among them many ailing European banks, of short-term loans.

Corporations don’t seem in a rush to take their money away from the banks either, an extraordinarily defensive and not very profitable stance, considering that Corporate America Inc. is sitting on record cash piles amid historically low interest rates.

That, in turn, could deprive the economy of much-needed investments and job-creating initiatives.

As for banks, the new deposit bonanza is unlikely to be enough to increase their appetite to ramp up the loans the U.S. economy so badly craves. At least not until the long-term uncertainties over new regulations and the industry’s underlying profitability (and compensation structure) have been resolved.

The last-minute Washington deal certainly avoided a ruinous descent into financial chaos. But the discombobulated process that preceded it has scared the markets into inertia and lethargy.

All’s well that ends, but a mattress economy is the last thing the U.S. needs.

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Atlantic International Partnership Latest News was created solely for the purpose of finding out the most effective optimizing strategy there is.

Do not mind the randomness of this blog’s contents. We believe this will better the system of finding relevant search results by people using the gift called Internet.

Atlantic International Partnership Headlines:Washington’s Haggling Left Wall Street Dangling

http://news.altlantic-internationalpartnership.com/tag/blogs/
Three years after Wall Street’s penchant for financial engineering, exotic derivatives and too-complicated-to-be-true assumptions brought the world economy to its knees, the U.S. political class crafted, and then partially solved, its very own crisis.

The game of “Deal or No Deal” played by Washington as the deadline to raise the debt ceiling drew perilously near will have long-lasting effects on markets and investors.

As one top Wall Street executive said when the talks dragged on late last week, “This may be a mess completely manufactured by politicians but, boy, they did a hell of a job!”

Even though a debt agreement was reached, the stock market fell on Monday, adding to a losing streak that took the Dow Jones Industrial Average from within a whisker of a new record to a one-month low last Friday.

And that is unlikely to be the end of the story. You just don’t push the world’s largest economy and the most liquid financial markets to the brink of disaster without causing damage somewhere.

Unlike the political arena, where there is always time for one more back-room resolution regardless of how entrenched positions have become, when money is at stake, actions lead to concrete reactions.

For starters, the prospect of a downgrade of U.S. debt will linger over the markets for as long as the credit rating firms sit on the fence—a phenomenon Pimco’s Bill Gross has dubbed “Debt Man Walking”—while the stuttering domestic economy remains investors’ most pressing long-term concern as shown by Monday’s poor manufacturing data.

Other thorny issues lurk in the weeds.

A fundamental difference between the summer of 2011 and the run-up to the collapse of Lehman Brothers in 2008 is that, this time, Wall Street and American corporations had time to prepare for the unthinkable. And prepare they did.

While politicians haggled, money-market funds, which pride themselves on being one of the safest investments around, rushed to sell securities to raise billions of dollars. They used part of the proceeds to pay higher-than-usual redemptions requests from jittery investors and parked the rest in cash.

Such moves reduced the amount of short-term loans made by money-market funds to companies and banks in the commercial-paper market, gumming up an important pipe in the financial edifice. Another crucial piece of plumbing—the “repo” market used by banks and investors for overnight funding—also suffered with interest rates rising to reflect the nervousness coursing through the system.

U.S. companies large and small also chose an extraordinary playbook, stashing cash in the corporate equivalent of mattresses—bank accounts that yield no interest but are insured by the federal government (a paradoxical vote of confidence given the shenanigans that were taking place in Washington).

Banks, for their part, looked at the influx of deposits with mixed feelings.

On one hand, the unexpected bounty provides them with cheap funding that can be put to work in the form of loans. At the same time, the new deposits swelled their liabilities (deposits are counted as liabilities because they will one day return to their owners)—raising the unwelcome possibility that regulators will force them to add more capital to their balance sheets.

One executive even suggested that if this “run to the bank” continues, lenders might consider introducing negative interest rates on deposits (savers would have to pay a fee to park the money in the bank) to keep money out.

Even if that proves far-fetched, unwinding the substantial capital movements triggered by Washington’s game of Russian roulette will prove costly and time-consuming—if it happens at all.

My reporting, for example, suggests that money-market funds are quite happy to keep a large portion of their assets in cash even after the debt-ceiling deal, partly to deflect criticism that they had taken on too much risk and partly because they are genuinely concerned about the future.

A prudent course of action perhaps, but one that could starve users of the commercial-paper market, chief among them many ailing European banks, of short-term loans.

Corporations don’t seem in a rush to take their money away from the banks either, an extraordinarily defensive and not very profitable stance, considering that Corporate America Inc. is sitting on record cash piles amid historically low interest rates.

That, in turn, could deprive the economy of much-needed investments and job-creating initiatives.

As for banks, the new deposit bonanza is unlikely to be enough to increase their appetite to ramp up the loans the U.S. economy so badly craves. At least not until the long-term uncertainties over new regulations and the industry’s underlying profitability (and compensation structure) have been resolved.

The last-minute Washington deal certainly avoided a ruinous descent into financial chaos. But the discombobulated process that preceded it has scared the markets into inertia and lethargy.

All’s well that ends, but a mattress economy is the last thing the U.S. needs.