Greenspan On China Bubble, 10 Year Note Yield If Above 4% (3/26/2010)

Greenspan spoke with Bloomberg about Treasury yields (if 10 year yield rises above 4% aggressively), the huge Federal debt, US jobless rate, US Dollar, China bubble and the Fed Rate/10 Year yield conundrum during 2004 which he said was responsible for the housing bubble and crisis. Here's a quick summary and then the 12 minute video.



Peter Schiff thinks the Fed was directly responsible (video).

Comments

  1. When he said "an aggressive move above 4% would mean we're in..." paused to load and I finished "deep shit." He said "...in for some difficulties." Typical Greenspan understatement.

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  2. Testimony of Chairman Alan Greenspan
    The regulation of OTC derivatives
    Before the Committee on Banking and Financial Services, U.S. House of Representatives
    July 24, 1998

    ............ "Finally, the prices established in privately negotiated transactions are not widely disseminated or used directly or indiscriminately as the basis for pricing other transactions. Counterparties in the OTC markets can easily recognize the risks to which they would be exposed by failing to make their own independent valuations of their transactions, whose economic and credit terms may differ in significant respects. Moreover, they usually have access to other, often more reliable or more relevant sources of information. Hence, any price distortions in particular transactions could not affect other buyers or sellers of the underlying asset.

    Professional counterparties to privately negotiated contracts also have demonstrated their ability to protect themselves from losses from fraud and counterparty insolvencies. They have managed credit risks quite effectively through careful evaluation of counterparties, the setting of internal credit limits, and judicious use of netting and collateral agreements. In particular, they have insisted that dealers have financial strength sufficient to warrant a credit rating of A or higher. This, in turn, provides substantial protection against losses from fraud. Dealers are established institutions with substantial assets and significant investments in their reputations. When they have been seen to engage in deceptive practices, the professional counterparties that have been victimized have been able to obtain redress under laws applicable to contracts generally. Moreover, the threat of legal damage awards provides dealers with strong incentives to avoid misconduct.

    A far more powerful incentive, however, is the fear of loss of the dealer's good reputation, without which it cannot compete effectively, regardless of its financial strength or financial engineering capabilities. In these respects, derivatives dealers bear no resemblance to the "bucket shops" whose activities apparently motivate the exchange trading requirement.

    I do not mean to suggest that counterparties will not in the future suffer significant losses on their OTC derivatives transactions. Since 1994 the effectiveness of their risk management skills has not been tested by widespread major declines in underlying asset prices. I have no doubt derivatives losses will mushroom at the next significant downturn as will losses on holdings of other risk assets, both on and off exchange. Nonetheless, I see no reason to question the underlying stability of the OTC markets, or the overall effectiveness of private market discipline, or the prudential supervision of the derivatives activities of banks and other regulated participants. The huge increase in the volume of OTC transactions reflects the judgments of counterparties that these instruments provide extensive protection against undue asset concentration risk. They are clearly perceived to add significant value to our financial structure, both here in the United States and internationally..."

    http://www.federalreserve.gov/boarddocs/Testimony/1998/19980724.htm

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