The Inflationist - Making Money in Stocks, Bonds, Forex, Commodities, Agriculture

Sign In


Subscribe to The Inflationist

Great Depression - Category Archive

Mar 12

The Debt Potato

Filed under Great Depression, Stock Market Crash, Stock Market Rally

The past year has been all about shifting debt.


The financial crisis drove American homeowners into debt. Homeowners defaulted on their loans (or threatened to), driving the banks into debt. The U.S. government bailed out the banks, shifting debt to the public balance sheet.


And over the last few weeks the “hot potato” has once again begun to move. From the government back to the private sector.


Today, the U.S. Treasury announced the auction of 600,000 warrants in Signature Bank. Treasury acquired the warrants as part of a “sweetener” package when the government agreed to lend money to keep Signature solvent.


The warrants allow the owners to purchase shares of Signature at $19 per share. With the bank currently trading at $39, these instruments now have significant value.


Rather than take ownership of the bank, the government is seeking to monetize the warrants by auctioning them to buyers from the private sector. Expected proceeds from the sale are over $11 million.


This is the next phase of the ongoing shift in debt. Money is now flowing back from the private sector to the government. Changing liabilities from one set of hands to another.


The Signature transaction is a relatively minor one. But the government over the last few weeks has announced a number of similar sales, amounting to billions in total value.


Of course, the U.S. government is still carrying trillions in debt associated with its bank bailouts. Debt that was shifted from the private sector to the public in an attempt to rescue the economy.


But the interesting thing is many analysts assumed this debt would finally rest with the government. There would be no one else to pass the potato to.


Transactions like the Signature warrant sale are proving this wrong. There are buyers in the private sector willing to buy back these instruments from the government.


The big question is: will this trend extend to major government debt pools like mortgage-backed securities? The Federal Reserve holds over $1 trillion in MBS. A major drag on public finances.


But that problem could be solved if these securities can eventually be sold back to the private sector, the way bank warrants are today. We’ll see if private appetite for a side of hot potatoes continues.


Here’s to the flow of funds,


By. Dave Forest


All entries filed under Great Depression

Fed Chooses to Exit through Eye of Needle
no responses - Posted 02.16.10
Ben Bernanke is making sure the Fed’s exit strategy goes as easily as a camel can pass through the eye of a needle. Instead of choosing to just sell assets and unwind the amount of securities it holds, the Fed chairman is seeking to be creative once again—as he was ...continue
A Mortally Wounded Private Sector
no responses - Posted 02.02.10
The President’s 2011 budget proposal was so outrageously egregious that Obama had to hold a special conference on Monday just to spin the news. The scope of the proposed budget for fiscal 2011 is $3.8 trillion. The difference between revenue and expenditures for this fiscal year will leave us with a ...continue
Protected: Markets Rise Preopen
2 responses - Posted 10.08.09
This post is password protected. To view it please enter your password below: Password: continue
Comparison of Bear Markets: 1929 vs 1937 vs 1976 vs 1987 vs 2000 vs Current Bear Market Charts
7 responses - Posted 07.19.09
Whilst we do not believe the past will predict the future, here is a chart showing all previous bear markets in the history of the Dow since 1929. We plotted all recessions and compared it with the current. 1929-1933 (Great Depression) 1937 1976 1987 2000 (dot com bear market) 2007 (current bear market) If we had to ...continue
Great Depression Quotes
no responses - Posted 03.11.09
"We will not have any more crashes in our time." - John Maynard Keynes in 1927 (1) "I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future." - E. ...continue
1929 Stock Market Crash Analysis
no responses - Posted 01.24.09
The continued weakness which broke through supports and saw lower lows on Friday (unexpectedly) makes us go back to our charts and drawing table to re-analyze the markets. Sentiment is down again, the financial sector is making new lows triggered by further bad debt, losses, and rising unemployment. News headlines ...continue

All content and source © 2008 The Inflationist - Making Money in Stocks, Bonds, Forex, Commodities, Agriculture |