The Great PS

[Texas Proud]

Yeah - but how did all of this get to money market funds owning some of this CDO stuff? How did it have a AAA rating considered "safe" for MM funds?

I didn't think S&P & Moody's had actually rated this stuff, but rather packaged it. So who rated it?

I know some (smart) MM funds completely avoided this stuff.

Above and beyond the hedge funds, etc., owning this stuff which does not surprise me, and some bond funds owning this stuff which is not that surprising, I am fairly flabbergasted by it showing up in MM funds.

Audrey

I don't know if you got an answer... have not read the whole thread... BUT
I was a trustee for some leveraged packages such as CDOs... how they get a AAA rating is they are SO HIGH on the pecking order for payment that the whole portfolio would have to go crap before they did not get paid...

Let's say you have $1 billion in loans... if someone offered you $200 mill of this and that you would be paid first... would you think it was AAA?? I mean, you got $800 mill that has to go bad before they even touch your first $ loss...

 

[barbarus]

Japan has a long paternalistic tradition. Those above felt some social obligation to ensure that those below them unless they were the Great Unwashed lowest class, (eta?) who had to fend for themselves.

"Trickle-down" was actually a social obligation due to cultural factors.
Presumably they will increasingly follow the West into a brave new world of hyper-greed.

 

[twaddle]

Socialism and paternalism certainly exist in Japan. Also in Europe. In theory, that should lead to lower productivity. But I'm not sure how it would relate to lower interest rates failing to stimulate the economy.

Lower short-term interest rates are designed to reduce saving, increase spending, and increase borrowing, right?

So, what happens if you do that when the consumer is already tapped out (negative savings rate), and already maxed out on loans (record ratio of household debt service to income)?

I don't know exactly what happened in Japan. Somehow they kept experiencing deflation even in the face of inflationary monetary policy. In theory, that's caused by overproduction, but I don't think that's what happened in Japan.

Bottom line: it's complicated. Lower short-term interest rates might not have the effect hoped for.

 

[Texas Proud]

Just my opinion....

I think that when the rates went down in Japan... People started to SAVE MORE since they were not getting interest... kind of a reverse effect than what happens here...

 

[barbarus]

Basic Japanese values are in some ways very different than American values.
Their society believes in homogeneity. A Japanese saying is "hammer down the nail head that is sticking up", i.e. don't stand out, fit in to your place in society. They save. They feel that even virtually free money is a lure to sucker them out of the funds they already possess.

We in the USA realize the things in life that truly count. A bigger house, more and bigger cars, electronic objects, designer clothes. We're optimists and know that a fatter paycheck is just down the road and are therefore willing to buy like there is no tomorrow. It won't take too much of a lower interest rate to fire up the consumatory engine.

When the goin' gets tough, the tough go shopping!

 

[haha]

Younger Japanese can make Americans look like pikers when it comes to shopping. Office clerks live with their parents so they can buy $1000 Gucci handbags.

I think to understand Japanese society might require a very good knowledge of the language and a very long time spent there.

Ha

 

[barbarus]

I've been told the same thing Ha. The parents think the young people have gone mad. The young think their parents stingy idiots.

The entire world is gradually coming around to the American enthusiasm for consumption. It represents basic human nature, a natural human sentiment.
When some authority figure urges fiscal prudence, it's with a broad wink.
"No one actually expects you to act this way, but I have to tell you to do it for political reasons."

Curious to discuss such things with a group that frequently espouses LBYMing.

 

[twaddle]

Just my opinion....

I think that when the rates went down in Japan... People started to SAVE MORE since they were not getting interest... kind of a reverse effect than what happens here...

I read that even Japanese housewives were (are?) playing the carry trade game. Borrowing locallly and buying New Zealand dollars, for example.

I wonder if Japanese might be affected by something like our depression-era relatives were. They learned that asset prices don't always go up, so they avoid investing in real estate and stocks.

We hear a lot on this site from people who want to buy stocks "on sale." But we saw that when they realized the sale might be going on for a while, they started to get a bit gun shy. Imagine if our "sale" on stocks and real estate went on for 15 years.... I think that would deeply affect the current generation of investors no matter what happens to the fed funds rate.