Minyan Mailbag: Savings Glut
...the "everything great" syndrome...
Your "Savings Glut" article was great. Thanks for reprinting it.
As I was reading through your article I was wondering if fitting into the same kind of thinking are corporations borrowing money to buy their stock, to drive up share prices, to make shareholders happy, to make top management richer, to make the market in general appear more "robust" and allow the current administration to say "everything is great."
By the way, I agree with you that this all has to end and the longer we wait the worse it will be - unfortunately. I have so many relatives and friends that are so taken in by the "everything is great" pitch and I feel they will be terribly blind sided by coming events. I just hope I am wrong.
Happy New Year and thanks for your great articles and teaching through the year.
Another aspect of the "everything great" syndrome is what is driving corporate paper spreads. Securitization has been probably the biggest factor in driving corporate spreads down: it has allowed access to this market by the "income starved" who are taking great risks to make a little money.
Standard and Poor's came out today and is assigning a higher probability of default on the lowest rated collateral backing these securities. This may slow the creation of these securities and have a negative effect going forward.
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