“Bubbles are born of greed; this is fear,”

More on the Flighty To Safety and a possible bubble on Bloomberg:

By Daniel Kruger

Jan. 1 (Bloomberg) -- Treasuries recorded their biggest annual gain since 1995 as falling stocks and frozen credit markets drove investors to the relative safety( FLIGHT TO SAFETY ) of U.S. government debt.

Yields of all maturities touched record lows as financial firms’ losses in the credit crisis exceeded $1 trillion and policy makers made unprecedented moves to rescue the country from recession. Foreign companies and institutions increased their stake in U.S. government debt by 29 percent in the first 10 months of the year, Treasury Department data shows.

“It’s one heck of a run for 2008,” said George Goncalves, chief Treasury and agency strategist with Morgan Stanley, one of 17 primary dealers that trade with the Fed. “The capital markets are going to be about the Treasury market next year.”

Treasuries returned 14 percent in 2008, according to Merrill Lynch & Co.’s Treasury Master index. It was the best performance since 1995, when they rose 18.5 percent after the Federal Reserve began lowering its benchmark interest rate from 6 percent. The Standard & Poor’s 500 Index lost more than 38 percent for the year, the most since 1937.

The U.S. economy entered a recession in December 2007, the National Bureau of Economic Research said this month. The Cambridge, Massachusetts-based group sets dates on U.S. business cycles. The slump began about four months after financial markets started seizing up as rising defaults on subprime mortgages began to affect the value of other assets in the credit markets.

‘Most Trying Year’

The Fed cut its target rate for overnight lending between banks to a range between zero and 0.25 percent, from 4.25 percent at the start of the year. It rescued insurer American International Group Inc. and committed $8.5 trillion to sustain the economy.

The Treasury put mortgage-finance companies Fannie Mae and Freddie Mac into conservatorship, purchased bank stock and bailed out automakers General Motors Corp. and Chrysler LLC. It spent half of a $700 billion bank-rescue fund, the Troubled Asset Relief Program, authorized by Congress.

Policy makers let Lehman Brothers Holdings Inc. collapse in September, sparking a panic about the safety( GUARANTEES. BRAVO! THAT'S IT. ) of financial institutions.

“This has been the most trying year that most people will ever live through,” Ray Remy, head of fixed income in New York at Daiwa Securities America Inc., another primary dealer, said yesterday. “Time to end it.”

The tumult is unlikely to be over. The U.S. said it may sell as much as $2 trillion in debt to fund various bailout and stimulus packages and the U.S. budget shortfall.

‘Tons of Supply’

The year will open with the auction of $8 billion of 10- year inflation-indexed securities on Jan. 6, a sale of three- year notes on Jan. 7 and an auction of 10-year notes Jan. 8; the size of the note sales has yet to be announced.

“Next week we have tons of supply, so the market has to pay attention to that,” Remy said. “As soon as we walk in here on Monday, I would imagine the selling will start.”

Demand for Treasuries last year reached the “bubble” phase seen in technology stocks in 2000 and real estate in 2006, David Rosenberg, chief North American economist at Merrill Lynch, wrote in a research note Dec. 1. He forecast the 10-year note’s yield could fall below 2.3 percent, which it did for the first time barely two weeks later.

“This next leg down in yield will undoubtedly represent the classic mania-turn-to-bubble phase( I HAVE TO SAY THAT I AGREE ),” New York-based Rosenberg wrote.

With the economy losing 1.9 million jobs in the first 11 months of 2008, according to Labor Department data, others saw different factors behind the record low yields.

‘Nowhere Else to Run’

“Bubbles are born of greed; this is fear( CORRECT. FEAR AND AVERSION TO RISK AND THE ACCOMPANYING FLIGHT TO SAFETY. ),” T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York, said this week. The firm is the investment-banking arm of Canada’s biggest lender. “There’s nowhere else to run( A CALLING RUN ) at this point. This is a lot more like Japan in the 1990s or the U.S. in the 1930s than the U.S. in the 1980s or 1970s.”

Foreign entities hold $3.04 trillion in U.S. securities, about 52 percent of marketable Treasury debt. That’s up 29 percent from $2.35 trillion they owned the end of 2007, according to Treasury Department data.

The Fed’s custodial holdings of Treasuries for foreign entities including central banks rose 37 percent in 2008 to $1.68 trillion as of Dec. 24, the largest jump since at least 1984.

The central bank’s custodial holdings of so-called agency securities, including mortgage securities issued by Fannie Mae and Freddie Mac, fell( ONLY IMPLICIT GUARANTEES ) 0.6 percent to $825 billion, the first decline since at least 2001 when the Fed began reporting the data. Agency holdings had risen between 22.7 percent and 53.3 percent in each previous year.

TED Spread

Yields indicate the Fed’s interest-rate reductions have made banks more willing to lend than earlier in 2008. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed to 1.35 percentage points yesterday from 4.64 percentage points in May. That was the most since Bloomberg began compiling the data in 1984.

Ten-year Treasury note yields will climb to 3.4 percent by the end of 2009, according to a Bloomberg survey of 58 economists, with the most recent forecasts given the heaviest weighting.

The Securities Industry and Financial Markets Association recommended that Treasuries markets be shut around the world today for the New Year’s Day holiday."

"When morality and justice are increasingly at odds with the law, it is time to challenge and change the law and the government that created it."

Willem Buiter will not be bullied into unethical and immoral behavior, thank you very much. Please read the whole post, I'm picking up the argument here:

"Why can the government and the state not be trusted with certain kinds of information?

(1) They lose it

If I were the recipient of every laptop filled with confidential information left on trains, in taxis or on park benches by those entrusted with maintaining data confidentiality, I would have the largest second-hand laptop franchise in the world.

There really is no such thing as confidential information. This is one reason why I oppose even universities collecting information on student attendance. If tomorrow the police were to turn up in Houghton Street demanding the information the LSE has in its files, who will deny them access? The Serjeant at Arms of the House of Commons, if we cannot get the Speaker of the House of Commons himself?

In my own immediate family, there have been examples of confidential medical information being leaked to parties that had no business accessing this information. The first time was in the US, and the leaky institution was a university Health Center; the second time was in the UK, and the institution concerned was an NHS hospital.

(2) They abuse it

Governments abuse information always and everywhere. My prediction that any information entrusted to the state can and will be abused is based on a rich historical record, spanning all countries and all of history. Who does not remember Richard Nixon going after his political enemies using the US tax authorities and their unique (confidential) data base?

Government access to more and more information greatly facilitates the gradual slippage towards a ‘guilty unless proven innocent’ legal system in the UK. The European Court of Human Rights (for the Euro-ignorant - this is not an EU institution, but instead an institution associated with the Council of Europe) recently ruled that the law permitting the police in England and Wales to keep, for an indefinite period, the finger prints and DNA samples of persons not convicted of a crime (and a-fortiori permitting these data to be kept on a criminal register!) breached article eight of the Human Rights Convention, covering the right to respect for private and family life.

The repeated attempts by the current UK government to introduce a mandatory ID card - preferably one that stores a host of personal details other than name, rank and serial number - should be resisted. “Ausweis, bitte”, does not sound good, even in English.

The fact that throughout history and in the UK today information is lost and/or abused by the government means that the government should be prevented from obtaining information it would be useful for the government to have if it were competent and benevolent, and could be trusted.

Because the state can never be trusted fully or unconditionally, and because it can become incompetent and/or malevolent - often unexpectedly and at short notice - I have in the past been moved to micro acts of civil disobedience. This involved no more than not providing all the requested/required information in the periodic censuses I have had to fill in, both in the USA and in the UK. The last time I returned a deliberately incomplete census was in the UK in 2001. I wrote about this in one of my first blogs on June 30, 2007, before the blog moved to FT.com. It is titled ‘Our Right for the Government Not to Know’.

The road to serfdom

Perversion of the intent of the law

In the UK, the powers granted to the government to fight terrorism have been perverted and abused. These powers were used to keep an 82-year-old Labour Party Conference heckler, Walter Wolfgang, from re-entering the conference after his ejection. They were also used to arrest two women who stood at the Cenotaph and read out the names of civilians killed in the Iraq war.

The UK government froze the UK assets of the Icelandic bank Landsbanki under the 2001 Anti-Terrorism, Crime and Security Act passed after the September 11, 2001 terrorist attacks in the USA. This was an outrageous and deeply worrying perversion of the intent of the Act. The UK government may have had a financial dispute with the Icelandic government about who should cough up for deposit protection in case of bank failure, but not even the most paranoid denizen of Whitehall would be able to find a link between Icesave and Landsbanki and terrorism.

Given this record, would one be surprised if those ticking the boxes for the PBS reporting exercise were told to complete an additional entry for students from that well-known terrorist-breeding nation Iceland? Will we see requests for additional information on students of middle-eastern or Indian sub-continental appearance? On Islamic students? On students wearing the hijab? On bearded students? Or perhaps just on bearded students wearing the hijab?

Police officers from a counter-terrorist unit arrested the conservative MP and spokesman on immigration matters Damian Green, and searched his home and his office in the House of Commons. The ‘terrorist conspiracy’ they were investigating concerned Home Office leaks, none of which involved national security issues. The offence that provided the fig-leaf for his arrest is a common law license to harass the opposition, to prevent government embarrassment and to undermine the public’s right to know: “conspiring to commit misconduct in a public office” and “aiding and abetting, counselling or procuring misconduct in a public office” .

The Regulation of Investigatory Powers Act was designed to grant the power to intercept/spy on e-mails and telephone conversations just to the police and the security services. It was, however, extended to local authorities, who now use it to snoop on suspected abuse of welfare benefits, violations of school catchment areas, dog fouling and littering. This fits seamlessly with the sad observation that the UK has more surveillance cameras and other CCTV-type equipment (private and public) per person and per square mile than any country in the world. Big brother is definitely watching you.

The undermining of habeas corpus

My relief at the failure of the government to extend to 42 days the period for which persons suspected of terrorist acts (I assume this now includes all Icelanders) can be held in detention without being charged, is severely qualified by the realisation that 28 days detention without charge is the new status quo. Even 28 days represents an unacceptable encroachment on habeas corpus - the right of the accused to face his or her accuser and to have his day in court. Forty eight hours should be all this is required for putting out fires. Don’t forget, that the Labour government in 2005 tried to extend the period of detention without charge for terrorist suspects to 90 days. Too many members of the current government have learnt all they know about constitutional rights and fundamental human rights at the Guantanamo Bay School of Law.

The right to remain silent

The right not to incriminate yourself, or the right to silence/to remain silent no longer exists in any meaningful sense in the UK.

The “right to silence” is an essential legal protection given to people undergoing police interrogation or trial. The right is recognised in many of the world’s legal systems. In the UK, it was first codified in the Judges’ Rules in 1912. In 1996, the European Court of Human Rights stated: “the right to remain silent under police questioning and the privilege against self-incrimination are generally recognised international standards which lie at the heart of the notion of a fair procedure under Article 6 [of the European Convention on Human Rights].”

The Terrorism Act 2000 undermined this right, and indeed appears to have abolished it altogether. Schedule 7 states that “a person who is questioned under paragraph 2 or 3 must give the examining officer any information in his possession which the officer requests.” The purpose of this obligation to provide information is supposed to be “determining whether he appears to be a person falling within section 40(1)(b).”, that is, whether he “has been concerned in the commission, preparation or instigation of acts of terrorism.” But Article 2.4. of this Schedule says that “an examining officer may exercise his powers under this paragraph whether or not he has grounds for suspecting that a person falls within section 40(1)(b).” Duh?!

You have to provide all the information the interrogating police officer requests in order for him to determine whether you are an actual or potential terrorist. But the interrogating officer can demand that information regardless of whether he has any grounds for suspecting you of being an actual or suspected terrorist! Instead he could suspect me of murder, rape, robbery, double parking or ‘conspiring to commit misconduct in a public office’. This is mad. Joseph Goebbels would have been proud of this fantastic pseudo-logical piece of legal gobbledygook. The law is not an ass but a poisonous viper in this case. This Catch-22 construction castrates the right to silence.

The ‘examining officer’ also has the power to “search anything which [the person] has with him, or which belongs to him”, and to hold him for up to 9 hours for the purpose of “examination”. Damian Green was held by the police for 9 hours. Just a coincidence.

The duty of civil disobedience when the law is unjust

What is to be done? First-best would be to get rid of the Points-Based visa system. Second-best would be to get an exemption from the law for the universities. Third-best would be for the universities, severally or jointly, to decide that they will not comply with the legal requirement to provide these data to the Home Office or any other government agency.

Regrettably, institutions like universities are likely to feel compelled to comply. They are vulnerable to financial and other sanctions from the state. This is true today as it was in the 1930s in Germany and under communist rule in Central and Eastern Europe. Institutions are therefore almost always cowards. There are many lapdog state churches for each bekennende Kirche. An isolated bekennende Kirche is also likely to be crushed by the power of government and the state. Only a collective ‘no’ from the world of higher education can stare down the government on this issue. The Fourth-best would be for individual faculty members to refuse to comply with the law.

If the fourth-best option is the only one available, it is the one I shall choose. As regards the practical side of this, effective sabotage of the law is not achieved, as I understand it, by simply refusing to take attendance. This would leave all non-EEA students open to harassment by the authorities. The way to subvert the law without putting students at risk is to record all students as present, even when they are absent or absent with reason. It may be enough to record students that are absent as ‘absent with reason’ - I intend to find out more about this. But under no circumstances will I, in my capacity as a faculty member, collect and pass on information regarding student attendance that can be used by the government to harass - even to deport - students or others living in this country.

It is unfortunate that one may be forced to lie, indeed to lie ‘in writing’, if one is to do one’s job - one’s duty - as an educator and teacher. But this is preferable to turning informer for the government. As that great conservative, Barry Goldwater said: Extremism in the defense of liberty is no vice. . .. Moderation in the pursuit of justice is no virtue.

When morality and justice are increasingly at odds with the law, it is time to challenge and change the law and the government that created it."

How well said. Here's my comment:

1. “The Fourth-best would be for individual faculty members to refuse to comply with the law.

   If the fourth-best option is the only one available, it is the one I shall choose. As regards the practical side of this, effective sabotage of the law is not achieved, as I understand it, by simply refusing to take attendance. This would leave all non-EEA students open to harassment by the authorities. The way to subvert the law without putting students at risk is to record all students as present, even when they are absent or absent with reason. It may be enough to record students that are absent as ‘absent with reason’ - I intend to find out more about this. But under no circumstances will I, in my capacity as a faculty member, collect and pass on information regarding student attendance that can be used by the government to harass - even to deport - students or others living in this country.”

   Don’t worry Buiter, if they put you in whatever you call jails over there, or, God forbid, prison, I’ll organize a crusade to free you, and write the first check for your defense. I’ll even fly to London and speak in Trafalgar Square on your behalf, and I’m agoraphobic.

   I don’t know what’s gotten into you, but you are writing one outstanding column after another. I totally agree with you, even as to immigration laws.

   They ought to give you one of those knighthood things, or at least another plane. Jesting aside, I’m dazzled and awed by your recent passion and wisdom for human rights and effective economic policy as expressed in these postings. I find myself in almost total agreement. And that, my friend, should scare the hell out of you.

   Hopefully, others, more respectable types, will post comments backing you up in this matter. If you have to rely on me, I hope you enjoy cramped quarters.

   Cheers. Don

   Posted by: Don the libertarian Democrat | December 7th, 2008 at 1:33 am | Report this comment