A Brief History of the Past 10,000 Years of Monetary Policy and Why Last Week Was a Big Deal

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  1. Avatar for xmj xmj says:

    Great stuff - and here’s a request for a sequel note on the effects of the undoing of the decades-long artificially suppressed interest rates – on global supply chains, globally organized conglomerates, and last but not least, the freedom of movement.

    If you’re already knee-deep wading in Austrian waters, might also go the roundabout way into the production theory and its relation to time preference, that underpins everything of the current global organization of the production and shipping of intermediary and consumption goods.

  2. Avatar for 010101 010101 says:

    The UK has a special kind of pension system that is not clearly demarcated in the common knowledge spectrum. Public sector employees have been granted (by themselves) defined benefit pensions (defined liability to issuer [treasury]) in contrast to private sector employees who have to bear the slings and arrows of outrageous fortune (defined contribution schemes [no legal liability to issuer other than, ahem, diligence]), except the scale of the government richly defined benefits has set the pace and expectations of all pensions because well it has to be fair and equal and all that. Everyone has become certain that all pensions always pay out except sometimes in the quiet backwaters of private industry when a corporate pension scheme falls of its yacht.

    Is it worth mentioning how ridiculous it is that the blame goes no further than the fund manager rung, or how actual macro monetary risk is distorted by hate focused blame from a public who have almost no control of the lens?

  3. First of all - the note is really good. I do appreciate when someone with a lot of knowledge goes through the trouble of making something super complicated - less so!

    As I read I only made a couple of mental notes, in no particular order of importance:

    • even for cynic, it is perhaps not super useful to define government on only a singular dimension- as “the people with a local monopoly on the legitimate use of violence”. It’s not that it is not correct, perhaps I just think it is not a very useful simplification at this particular point in history where populism is on the rise everywhere and democracy is facing serious challenges… It will be a popular take though, so perhaps it is worth it.

    • perhaps in a similar vein, to let the equation of “the rich” with “job creators” stand unchallenged, is also perhaps not ideal at this point in time - as “trickle down economics” is having a tough old time these days.

    Primarily, reading your note (and your recent tweets about ZIRP etc) has me thinking of a recent book review I read in the Financial Times. I tried to post the link but I believe there is a paywall.

    It is an article by Martin Wolfe, writing about a new-ish book called “The Price of Time” by Edward Chancellor. A friend of mine (at a UK investment house called Ruffer) recently sent me a copy and I guess I was trying to figure out if it was going to be worth my time reading it… As it happens, I very much suspect that you and Edward Chancellor agree on the world at large, as his main assertion is the the price of money and therefore time has been far too low, for far too long.

    So, in summary - I really enjoyed the article. And if I got to wish for a follow up note it would be one that goes deeper into the “time preference of money” topic. I find this subject really interesting as it is yet another area of economics that exists very close to philosophy and is therefore probably also closely related to the power of narrative.

  4. Avatar for bhunt bhunt says:

    I forgot to insert my [sarc] notation on that one, Em! I think the whole “job creators” word play on tax cuts is absolute bollocks.

  5. Pensions are similarly skewed in the US. The private sector has nearly no defined benefit plans anymore, other than in companies that have been around 50+ years. The public sector historically paid less in direct compensation but offered much more generous defined benefit pensions. As defined benefit plans disappeared for private sector workers they continued to flourish for public employees. And, the impossible 7-8% return promises in a world of high valuation and minuscule interest rates has led to all manner of behaviors that also involve consultants and hidden leverage. The massive shift to private equity and private credit has the money flow from public pensions as the motive force.

  6. Avatar for jewing jewing says:

    Johannes is correct: any close reading of this note ends with the question of “How did we get here, and why?” And while many of us here have our suspicions, and they are likely pretty similar - central banks choosing to inflate assets, and keep them inflated, to avoid political consequences - it certainly warrants further exegesis.

    And of course, “Against the Gods” by Peter Bernstein should be required reading for anyone looking to further understand the history of leverage.

  7. I hope the note breaks through due to how well it lays out the issues and walks the reader along the path to where we are. I fear that investors still aren’t internalizing the cost and risks from putting interest rates back to a level that nominally covers inflation.

    I attended a dinner with five other couples in my peer group. White collar, upper middle-income, empty nesters. All now have children trying to join the homeowner’s club as they start careers and families. The overwhelming sentiment remains 6.5% mortgages are sooo reasonable! Lots of anecdotes of each couple’s first mortgage cost (all between 9% and 14%). None are connecting the dots that they were financing $100k @10% ($878 monthly for a 30 year loan). In neighborhoods with schools they want their grandchildren attending, their kids need to borrow $600k, and cobble $150-200k in a down payment! That is a $3792 per month. Worse, the house price moved up $50k from when junior started looking and got prequalified for a 3% mortgage. So, they budgeted $2319 (3% on $550k) and the market has completely moved beyond their budget. Our generation got the benefit of the value change as rates fell. Our kids face paying record valuation and not having persistent refi cycles to build or extract equity.

    There are substantial risks to the market clearing, and a loss of equity when home prices fall 10-20% and a job related move becomes necessary. Similarly, institutional investors are deer in the headlights to the simple math of higher cap rates impairing any deal structure with leverage done in the last decade.

  8. is absolute bollocks.

    I see what you did there :wink:

    Great note Ben , I might add that in addition to all these pensions turned hedge funds are the hedge funds themselves and some of them are on the wrong side of all this volatility. I think the global estimate for derivatives is 1 QUADRILLION dollars.

  9. Avatar for 010101 010101 says:

    That is how biased and naive I am to believe in somewhere that is not twisted out of shape by neo-Keynesian legerdemain. Does Europe have them also?

  10. Avatar for xmj xmj says:

    On the note of deer in the headlines, I came across a pretty solid article from Bloomberg published yesterday:
    European Real Estate’s Decade-Long Party Is Coming to an End – likely paywalled, archive.ph might help here…

    A place where you can already see the transmission mechanism between higher interest rates and lower asset prices: real estate companies. So much so that Vonovia SE, biggest corporate landlord of flats in Germany, finds its stock is two thirds off the highs from Q3/2020 – and that’s before having to write off significant amounts of Euros on those assets it does retain (i.e, cannot offload fast enough).

  11. Avatar for xmj xmj says:

    That was indeed a great book (he also couldn’t hide his closet-Austrian viewpoints) and I second thinking @bhunt & Edward Chancellor agree in more ways than not.

    Now has me wondering if we could bait them into doing a podcast together on all this.

  12. Avatar for 010101 010101 says:

    In the book of Matthew chapter 20 unskilled manual labor costs 1 Denarius (about 4 grams of silver) or about $2.57 per day.

    Who says trickle-down economics is gammy!

  13. This gets at something I was pushing a week or so ago in another thread.

    FX is a relative game. Anything the Fed is doing will be felt by the rest of the world, and what economies will be strong enough to allow their CBs to keep up with the Fed in terms of hikes and tightening? The PBOC is loosening which is why the USD continues to annihilate CNY. The ECB has been functionally allergic to rate hikes until very recently and they’re still considerably lower than the US. Hell, until like an hour ago they were still living in the land of ZIRP and in some cases negative rates. They’re not even at 100bps yet!

    The only way the USD weakens dramatically is if there’s a very hard landing that forces the Fed to ease at a pace and degree that is more dovish than any of their contemporaries. I’m failing to imagine a scenario in which that happens. If nothing else you can always depend on the Europeans to be more dovish than the Fed.

    One of the many layers to this tiramisu of global misery is the US is not only exporting inflation via the USD going full Tasmanian Devil, but the situation will simply not abate until the Fed slows down while other sovereign CBs continue to hike. If tomorrow every CB agreed to cease any further hikes the USD would continue to maul local currencies because in a relative sense nothing will have changed.

  14. Avatar for KCP KCP says:

    Great insight - thanks - did not know about this new hedging “tool”. It seems that every time (increasing with frequency) that these credit bubbles explode, the plumbing of the system gets exposed. That is, the water only really flows one way and when the “modeling” of the product is exposed to unanticipated factors. The water backs up, leaks through the seals/fittings of the pipes and may result in a flood.

    Then, as Ben points, out, the mess gets cleaned up through some bridge (Govt/Central Bank intervention) and the world moves on with the same leverage and new “tools” and “models” to seemingly avert the next crisis.

    One would think at some point, this has to stop. This is above my paygrade/intellect, but doesn’t some entity bear the cost when our modern day “Saviors” (Govt/Central Bank) come in to clean up the mess? Isn’t that someone the taxbase of a nation?

    We clearly live in credit cycles and it seems that some of the pain just gets kicked down the road for future stakeholders to deal with…I hate to be pessimistic here but does it seem unrealistic to see the Fed in the US step in the minute that delinquencies start rising in the lower credit quadrant of car loans, in order to make the delinquency “go away” in order to prevent a panic?

  15. Avatar for 010101 010101 says:

    The policy committee are looking at “aggregate demand” which is way more ephemeral than solely the credit of “those recently without a car”.

  16. Hi @bhunt,
    Having spent a week or so reading and watching and reading and watching…
    and with everything that ET has brought to the table about the value/power of narrative over everything else in mind, an important question has now taken residence in my admittedly exasperated mind:

    What is to stop (if anything) the following narrative from taking hold in the world-at-large:

    - Raising rates was the policy error.

    (rather than the more factual assessment, that artificially low interest rates caused all of this)

    I am not looking for a discussion about which narrative is right (I am all in on your side already), but I am also starting to realise a few things about Derek J de Solla Price’s concept of “embedded growth obligations” and the demographic challenge cause by scientific progress’ exponential curve…

    And if low rates is viewed as a more “practical” solution, than the list of more dramatic potential policies - can this narrative be stopped?


  17. Avatar for bhunt bhunt says:

    Great question, Em, and right now the narrative is moving in the direction of “yes, we understand we need to raise rates, but we don’t need to raise them so quickly.”

    Like many things, it’s hard for narratives to make a complete state-change quantum leap to “raising rates was the policy error”. We’ll go through variations of critique (timing, extent, duration) before we get to 180 degrees different.

  18. I’m curious how Japan plays into all of this. Seems like the carry trade might have some major ramifications for the world while the Japanese Central Bank is still trying to manipulate their economy with low interest rates/currency. The UK is probably just the beginning but it could also mean the Central Banks will have to continue with their ploy.

  19. Mohamed El-Erian, a key missionary in the Fed/central banks orbit, raised a related issue a few months ago. He warned against a start/stop dynamic where the Fed loses its nerve to maintain restraint until inflation is back to target. It is pretty clear Powell got the message! But, the unwinding leverage would, and likely will, push the financial stability mandate back into first priority as we’ve seen at the Bank of England. The shape of the yield curve is a reflection of the market pricing the risk of a related break in market function in US markets before the Fed gets to its forecast terminal rate. So, we are left to ponder what happens when the central banks are blamed for the error of raising rates and the financial carnage that is unleashed? And, with inflation still extant. Seems that will be when credibility/missionary status starts its inevitable decline.

  20. “falls off its yacht.”
    Ha! I see what you did there. Looters gonna loot, I guess.
    Thanks for the details - step-daughter’s b/f works for NHS; I presume his is of the (treasury) variety.

  21. Avatar for alpha2 alpha2 says:

    Here in Blighty no end of terms are redefined. Today I heard a Labour politician defining public sector workers, in the context of NHS Nurses balloting for strike action, as “the real wealth creators”. Who they were being contrasted with was not made clear. Perhaps she was referring to social wealth.

  22. Avatar for Trey Trey says:

    Same story different day.

    Step 1. Securitize pennies in front of a steamroller
    Step 2. Sell the shit out of it till it’s too big to fail
    Step 3. Profit
    Step 4 Repeat

    Where was the bailout when those assholes sold XIV to retail investors?

  23. Thanks, I do think it is early for the shift in narrative - but that it will come.

    Probably when the US treasury market has its own “moment” and it will start when this moment is tied to something non-bank/financial elite that the public at large will not want “broken” in the name of higher interest rates. Pensions was a good one here in the UK, but anything in the vicinity of “real people” will do.

    It feels like the scene is set for something already, with Waller’s recent statement…which I guess is “credibility-building” exercise for the Fed - who probably doesn’t want the neon sign “buyer of last resort” flashing on their door prematurely, and certainly not in service of the international community as opposed to domestic markets. Considering the nature of the US treasury market, this distinction is of course artificial…

    Do you still use Quid for your narrative analysis? If so, how much of the output would you say is influenced by the early search parameters/questions? I guess I am wondering about how much the narrative analysis is influenced by any one user’s early focus?

  24. On point. I’m down here in Australia and that is exactly what is happening. We’ve have to keep pace whether we need to or not. The other thing worth noting is that the pseudo positive in cheaper goods presumes that there are no trade restrictions in place. In OZ there are many.

  25. Ben is right – this is less about the UK and more about the fabric of the global financial system. The frequency of major margin calls had already been rising, and will continue to do so. Who’s next?

  26. First, my compliments to Ben and his team as well as his readers. I’m always challenged to “keep up”. Thank you.

    In my mind, an unravelling is occurring of leverage that is long overdue.

    How will it play out? Can the Fed contain it? Will it get too big to contain?

    The Uk bank is practicing QE and higher rates at the same time the government proposes an expansonary budget. Unfortunately the yard is greater than the sandbox and the yard forces equilibrium.

    The UK scenario sounds a lot like the prospects of the U.S. e.i. The Fed fighting the fiscal powers and likely to have to provide liquidity.

    Are we a sandbox in the U.S. or the yard? We could be the yard, being the reserve currency. I think a sandbox, though.

    So what is the yard? Global leverage? The money multiplier? Faith?

    Ben suggests he doesn’t know the next Truss/Kwarteng, but I bet he can guess!

    My guess is the Fed loses control of interest rates and we find we are not rich anymore. I think the “Least Dirty Laundry” arguement for currency only works in stable finance or the short term.


  27. Avatar for josh josh says:

    Hi Ben,

    Thanks for a great note as always. But what do you make of the argument by proponents of LDI that their approach is a prudent strategy for reducing risk given the massive long-dated liabilities of these plans? To play devil’s advocate, the present value of these liabilities is not just an accounting quirk but a genuine reflection of the plan’s net economics. This reduction in risk is aside from any potential advantages from the the expected return of buying duration. Granted, the current crisis has shown the hazards of posting margin on these trades without any offsetting cashflows from the reduction in plan liabilities (a risk that was clear and present at least since the Metallgesellschaft debacle). But that is probably a question structure and implementation, while you cast the entire enterprise in a very negative light. For what it’s worth, it seems from a recent JP Morgan analysis that UK pensions have seen their liabilities fall more that their assets in the recent volatility (admittedly with massive government intervention). I’m interested to hear your thoughts.

  28. “If you have a pot of money that is immune to bank runs, over time, modern finance will find a way to make it vulnerable to bank runs. That is an emergent property of modern finance. No one sits down and says “let’s make pension funds vulnerable to bank runs!” Finance, as an abstract entity, just sort of does that on its own.”

    -Matt Levine

    Seems to be the Cliff’s Notes version of what Ben covered in great detail.

  29. Avatar for bhunt bhunt says:

    Yes, I am presenting the entire enterprise of pension funds borrowing short to lend long in a very negative light because it is - in my opinion - an enterprise of complete and utter bullshit.

  30. After reading this note again last night, decided to go back and refresh my memory from the GFC. Chart is S&P 500 from 2007-2009 with events highlighted. Its surreal looking back at the enormity of it all, cascading effects of leverage being unwound week after week after week over 18 months. Not that 2022 will follow the GFC, but interesting to see how the dominoes fell, and how my memory had compressed it.

    Maybe history does rhyme though, when you see that first headline in late 2007…
    “BOE makes emergency loan to Northern Rock”.

  31. Avatar for bhunt bhunt says:

    I remember Northern Rock!

  32. I was managing a long/short fund through 2008/9. None of my memories of that period are good, even though I managed to eke out a positive return for our investors. The trading was nearly impossible as liquidity was withdrawn. Crisis driven proposals were hurled into the chasm, and investors believed that each policy would save the system… until enough time passed to reveal that confidence as misplaced. The epicenter of the financial loss was in the banks and here is the S&P Bank ETF chart from 2008.


    Along the path of destruction there were several headlines that resulted in this index rocketing 20-40% higher on its trip from $50 to under $10. I vividly remember many mornings when my short financial positions were indicated up 30-50% in pre-market indications. First, sovereign wealth funds were confidently adding to positions and proving extra capital. Then, bans on selling financial stocks short, then all manner of government backstops, and finally just rip up the rules of bankruptcy (GM) and bank accounting (mark to market). It became crystal clear over the journey that the fundamentals were so bad that they could not be allowed to unfold. Seeing the levers pulled defied any description of free market capitalism.

  33. Avatar for bhunt bhunt says:

    This was my experience, as well.

  34. 2008 October was truly bad.

    I recall looking at whiteboards where the bank’s senior treasury officials would update traders on $ liquidity availability.

    In most cases it was max 30 days only available through the broker market.

    When you get a question from a junior trader whether they should execute a trade with a major US investment bank because rumours are that the collateral quality offered had become so poor, just fired up the anxiety levels even more.

    There were a few days in October where it truly felt like the plumbing of the financial system would fall apart.

    Then it all turned.

    Even though prices continued to fall until March 2009, the plumbing started to work again. Repos started to work again meaning liquidity returned.

    The issue with pension funds has always been a maturity mismatch and as a derivative house.
    I recall even in the early 90’s, swaps were designed to feed this gap. In those days banks posted collateral. Larger funds didn’t. And derivatives had to be structured not to be deemed to be derivatives.

    As Ben so eloquently explained, in recent times, the margin posted to UK pension funds on LDI swaps as rates fell, were used to buy assets instead of being held in their collateral account.

    Managers like Blackrock showed you models suggesting rates would not go higher than say 1.25%. The excess collateral could be used to buy less liquid private assets which coincidentally the likes of Blackrock have an inventory of :innocent:.

    From 2007 till recently, central banks added so much liquidity but also changed the rules on capital markets making it so difficult for banks to hold or trade risk assets. Many trading desks have shut down. Many senior traders left. There is less market making which means that price moves are so much more volatile.

    After 14 years of ample liquidity we are seeing the effect of deleveraging of a hyper leveraged market in a market filled with players who are inexperienced and only seen a bull market.

    Now rates have turned and how? And we have an almighty mess on our hands.

  35. I wrote a blog on that probably around 2009. The rules weren’t ripped up. The senior secured was preserved - PBGC which was a subsidiary of China Inc. at the time buying all the UST. Indiana’s AG sued on behalf of the state pension because he didn’t realize that owning GM IG debt put you at the bottom below stock holders given that bankruptcy would have forced GM’s way underfunded pension into PBGC responsibility which would have required massive Treasury issuance, risk cascading of other underfunded pensions, etc. That’s rich given that Indiana failed to police Studebaker embezzling their pension which led to the creation of the PBGC. So the subordinated IG debt was taken out. It’s extraordinary to me how few understood this that needed to.

  36. A few years ago, at a conference for CFPs - tend to focus more on consequences to individual than collective and wade farther into philosophy - a speaker pointed out that human history was about to cross a new line with unknown consequences. When the US instituted social security the average length of benefit payments was less than two years. As similar welfare programs and corporate pensions were instituted globally the average length of payout was less than a decade in most cases.

    In at least the developed world with retirement savings and longer life expectancy, humanity was just about to cross the line to more years as adults in retirement than working. This of course is on average. The presenter hypothesized this would lead towards great opportunities to advance society as more than half of those working would have the time and capacity to gain more knowledge or pursue new opportunities, dreams, or advancements.

    The first order reason for money was to reduce friction in exchange of economic utility. About a nanosecond after that someone with the ability to, realized that they could save some of this utility for future use as opposed to the complication of the man in Luke 12. All similar to what Ben wrote.

    And now more than 50% of us in the developed world expect to store enough future utility by some vehicle in a shorter amount of time than we expect to draw from it by tearing down our barns and building bigger ones. But God called this rich man a fool. And having to maintain barns filled with stored grain is too much work compared to having a bank account, or pension. And Wall Street loves to separate fools from their money - which is what Ben calls securitization. Or just front running what would happen to that man’s stored utility when he dies.

  37. The plan that allowed GM to get to the other side hinged on ten’s of billions of taxpayer support. That was just one of the “too big to fail” situations we faced by allowing prior gains to be privatized and eventual losses to be socialized. GM creditors did not face the music of letting managment operate as a refi lender instead of running a focused and profitable car business. The fact that the taxpayer had to step in was the blurring of the rule of law that I was referring to.

  38. UST Liquidity: Cloudy Skies

    This report was in my email this morning.

  39. The Long end of the Treasury market does not appear to be functioning rationally.

  40. The handoff of trading from Europe to the US felt like it had bond margin calls and derivatives driving the price action. Currencies, bonds and stock futures were all over the map! The Yen neared 152 vs the dollar, the US 10 yr approached 4.33% (it was under 4.00% on Tuesday), and equity futures were under water. Then, the dollar reversed and the curve flattened a ton. Yen now back under 147! Euro and pound also now up on the session. Treasury yields 10 basis points lower than the morning peak, stock futures reversed to up. Reports that Yen “knock in” trades are giving it a bid once it reversed back below 150. And, of course fears of intervention by the BOJ since they did that around 145 to no effect a few weeks ago.

    It is not “normal” for the UST to move in 25-30 basis point increments over a few days with no proximate economic data as a piece of new market information. This is urgent flow and urgency is created by leverage.

  41. Avatar for bhunt bhunt says:

    100%. If you don’t see that the plumbing is broken, you’re not paying attention.

  42. The 5 year UST is 10 basis points lower and the 30 year yield is 10 basis points higher.
    “Flattened a ton” is the perfect description.

  43. Avatar for twclix twclix says:

    In 1995, I co-authored a book entitled: Pension Funds: A Common Sense Guide to a Common Goal. It was soundly panned by P&I who called us naive and worse. At the time, the defined benefit plans we spoke with were not at all interested in our re-invention of liability-driven investing. By re-invention, I should note that railroad pensions were managed solely with unleveraged bonds. But that practice came to a halt with the advent of modern portfolio theory where minimizing cross-correlation volatility and beating a peer benchmark became more important than paying all the pensions affordably and without fail.

    Our LDI premise was simple–the purpose of a DB pension fund is to pay pensions–without fail to the plan participants and affordably to the contributors. We recommended defeasing the near-term (5years? 10 years? Just how lucky are you feeling today, punk?) liabilities with money-good fixed income (no leverage), with a cash matching or duration matching strategy.

    The length of the defeasing period would reflect how much risk the board was willing to take. With ever-lower interest rates, defeasing was expensive (prudent and expensive, that is), so the board would have to be judicious. The real trick was to pay close attention to match the term structure of the liabilities (short-term, medium-term, and long term–pension funds have obligations from today until the last plan participant dies so they are NOT only long-term investors).

    The plan would establish a hurdle rate that, when exceeded by returns on the assets in the non-defeased component of the portfolio, could trigger harvesting to fill in the most distant liability cells of defeasement with more money-good bonds to stay on a targeted funded ratio path. This is really an elegant solution that did not rely on the narrative embedded in modern portfolio theory.

    MPT is a tool, like a screwdriver or a hammer. But it is a flawed tool because it has no way to account for the payment of a specific set of obligations at specific points in time. It is based on probability theory which assumes time constancy where the past is sure to be prologue.

    So nobody cared and we had to write another book (Pay Yourself First: A Commonsense Guide to Life cycle Retirement Investing) and launch the first target date mutual funds and pay the SEC $600k for a no-action letter for the priviledge of doing so!! But that’s another story.

    Nobody cared, that is, until the consulting community got cute and added leverage to the strategy, and the whole thing then went cockeyed. P&I, so quick to call us idiots, began holding conferences on leveraged LDI. Yikes!

    But our simple approach was (and still is) the best way to achieve an maintain a targeted funded ratio. But it was far too commonsense and boring until Wall Street came in with their derivatives.

    There’s a lesson to this tale, I suppose. But hell if I know what it is.

  44. Avatar for bhunt bhunt says:

    What a great letter! Thank you, Timothy!

  45. Avatar for 010101 010101 says:

    That is really quite a beautiful anecdote about human nature.

    A man avails himself of the truth so long as it is serviceable; but he seizes on what is false with a passionate eloquence as soon as he can make a momentary use of it; whether it be to dazzle others with it as a kind of half-truth, or to employ it as a stopgap for effecting an apparent union between things that have been disjointed.

    And I would add, when over time a newer truth becomes undeniable, he professes to it having been his opinion all along.

  46. Sorry I thought you were addressing the common argument that allowing equity ownership to maintain some value while debt holders were forced to take a markdown violated law. And sure, it violated the letter of the law. But if you look through the entities and account for where the largest senior preferred liability stood, which was the underfunded pension, then the situation is more reasonable. That’s opposed to bailing out AIG so they could write a big check to Goldman Sachs who clearly negotiated in bad faith.

  47. Back in 2020 our dealerships entered an interest rate swap to make our floor plan borrowing fixed at perhaps 50 bps above libor at the time through end of 2024. I was stunned anyone could think the current actions of policymakers would not explode inflation. And I had no belief we could get to, let alone sustain negative interest rates. It took a few weeks to even get set up to execute the swap because the bank’s swap desk was so flooded with activity. I thought, “who on earth is taking the other side of this bet? Are those people crazy?” I guess you’ve told me who thinks betting on sustained low rates was a good idea. And my swap is hugely in the money, meaning in the zero sum game of Wall Street I am a recipient of the folly of this approach pension funds took.

  48. I have PTSD when I read that chart.

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