Category: Credit, Fixed Income/Interest Rates, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

3 Responses to “Is there a trade-off between low bond risk premiums and financial stability?”

  1. VennData says:

    But in a Minsky Moment of a different color, will backtested white paper declarations of low-volatility’s low r-squareds to future volatility actually create the volaility they say isnt there?

    • victor says:

      Adding to your point: In 1992, Minsky warned that, “capitalist economies exhibit . . . debt deflations that . . . spin out of control (as) the economic system’s reactions to the movement of the economy amplify the movement.” Sad to say, Minsky adds, “. . . government interventions aimed at containing the deterioration (are often) inept in historical crises.” It remains to be seen whether he was right or wrong on that point following the 2009 bailouts.
      Minsky concluded that over long periods of prosperity, the economy transits from financial structures that make for a stable system to structures that makes for an unstable system; i.e., that “stability leads to instability,” largely through what he described as hedging, speculation and Ponzi finance.

  2. victor says:

    This is a pedantically written piece by, well…a financial economist. Financial stability? I have been lamenting (and you too BR and John Bogle quoted below) that in 2009 the Obama Admin. had the opportunity (narrow window) to foster the creation of a new fiduciary society of enforcing standards of trusteeship and fiduciary duty under which money managers operate with the sole purpose and in the exclusive benefit of the interests of their beneficiaries—largely the owners of mutual fund shares and the beneficiaries of our pension plans.

    While the government action was essential, however, the new system could have been developed in concert with the private investment sector, an Alexander Hamilton-like sharing of the responsibilities.

    Instead, the government ended up paying the financial sector with our money. Given our flawed political system, the cost is more likely to be extracted from future generations with dollars that buy less. Inflation is just another form of taxation, albeit one that is sharply regressive.

    Here’s proof positive that “The more things change, the more they remain the same.”

    “I venture to assert that when the history of the financial era which has just drawn to a close comes to be written, most of the mistakes and its major faults will be ascribed to the failure to observe the fiduciary principle, the precept as old as holy writ, that ‘a man cannot serve two masters’ . . . the development of the corporate structure so as to vest in small groups control over the resources of great numbers of small and uninformed investors, make imperative a fresh and active devotion to that principle if the modern world of business is to perform its proper function. Yet, those who serve nominally as trustees, but relieved, by clever legal devices, from the obligation to protect those who interests they purport to represent . . . [and] consider only last the interests of those whose funds they command, suggest how far we have ignored the necessary implications of that principle.”
    Supreme Court Justice Harlan Fiske Stone, 1934.