The Long Bond Is Holding a High Note

T-Bills Hit Zero

AP
Point of no return: Interest on T-bills hits zero
By MADLEN READ and MARTIN CRUTSINGER
December 9, 2008

NEW YORK – Investors are so nervous they're willing to accept the same return from government debt that they'd get from burying money in a coffee can — zero.

The Treasury Department said Tuesday it had sold $30 billion in four-week bills at an interest rate of zero percent, the first time that's happened since the government began issuing the notes in 2001.

And when investors traded their T-bills with each other, the yield sometimes went negative. That's how extreme the market anxiety is: Some are willing to give up a little of their money just to park it in a relatively safe place.

"No one wants to run the risk of any accidents," said Lou Crandall, chief economist at Wrightson ICAP, a research company that specializes in government finance.

At last week's government auction of the four-week bills, the interest rate was a slightly higher but still paltry 0.04 percent. Three-month T-bills auctioned by the government on Monday paid poorly, too — 0.005 percent.

While everyday people can keep their cash in an interest-earning CD or savings account at the bank, institutional investors with hundreds of millions of dollars on their hands often use government debt as part of their investment strategy.

In the Treasury market, the U.S. government, considered the most creditworthy of borrowers, issues IOUs of varying durations to raise money.

The zero percent interest rate is no reason to panic. As recently as Monday, investors were plowing cash into stocks, and averages like the Dow industrials are off their lows.

And long-term government bonds, while near record lows, are still paying decent money considering the tumultuous climate. The yield on a 30-year bond on Tuesday was a little higher than 3 percent.

There's good news in all this for taxpayers: Low interest rates on government debt mean the United States is financing its $700 billion bailout of the financial system very cheaply. The Treasury has sold mountains of debt to pay for it.

But the trend also underlines stubborn anxiety in the financial market that could keep the economy sluggish for years to come, and it translates into stagnant returns for people who have their money in places like money market funds.

"There's a price for safety," said Peter Crane, president of money market mutual fund information company Crane Data LLC. "Down slightly is the new up."

As the stock market has taken its alarming plunge, people have been moving money from riskier assets to safer ones. According to Crane Data, funds invested purely in Treasurys have surged more than 150 percent over the past year, to $726 billion.

Earning zero percent on an investment for a short while may not seem that dire for the average person. But a zero percent rate has serious consequences for the complex credit markets.

Those markets have been dysfunctional since Lehman Brothers Holdings Inc. went bankrupt in September, scaring away investors who normally buy bonds from seemingly creditworthy borrowers. Lending, the lifeblood of the economy, has frozen up.

One corner of the credit markets is the repurchase markets, known as "repo," where banks and securities firms make and receive short-term loans backed by collateral, usually Treasury bills.

When those T-bills are yielding nothing, there's little incentive to deliver them on time. If the holder loses the interest, it's no big deal.

"This is a particular problem in a time like this, because people are buying Treasury securities for their security, for their safety. It's important that they're delivered," Crandall said. (You can bet the shorts are piling on - Jesse)

And high demand for government debt rather than corporate debt could stifle economic growth.

Corporate bond rates have been surging to record levels compared with Treasurys, which makes it more expensive for companies to raise money. And when companies can't raise money, they often have to cut costs, sometimes through layoffs.

Only a few corporate bond deals have been going through lately, and most have been through the government, which has agreed to guarantee financial institutions' bond sales. American Express Co., for one, said Tuesday it has issued $5.5 billion through the government program.

Many worry that the government will become the most attractive lender and borrower in the market — crowding out others in the private sector....

Oversight Panel Expected to Release Report Critical of TARP

Sortable List of TARP Recipients to Date

If they televise the Congressional testimony tomorrow it might be interesting to watch, especially if Bernanke becomes Sam-Kinison hysterical and Paulson jack-hammer stammers out a declaration of martial law.

Wall Street Journal
Oversight Panel to Criticize TARP
By DAMIAN PALETTA and DEBORAH SOLOMON
DECEMBER 9, 2008, 5:52 P.M. ET

WASHINGTON -- The panel set up to oversee the Treasury Department $700 billion financial-rescue fund is expected to release a report Wednesday highly critical of the government's handling of the bailout, people familiar with the matter said. It will also press the Bush administration to act more aggressively to prevent foreclosures, these people said.

The report isn't expected to contain any new findings but is expected to raise fresh questions about the program at a time when many lawmakers expect the Bush administration to seek access to the second half of the funds.

The panel's top official, Harvard Law School professor Elizabeth Warren, is scheduled to describe her findings to the House Financial Services Committee Wednesday.

Among other things, a draft of the report posed 10 questions to Treasury, which pressed officials for a clearer strategy, asked whether there is sufficient accountability, and why more hasn't been done to help prevent foreclosures.

The roughly 30-page report is also expected to press Treasury to describe whether the money used to inject capital into the banking sector is a "giveaway" or a "fair deal," according to one person familiar with the report.

A Treasury spokeswoman declined to comment on the report noting that the department has not seen its final findings.

Republicans have privately complained that the panel has taken a partisan bent. It isn't clear if one of its four members, Rep. Jeb Hensarling (R., Texas), is going to sign the report. Mr. Hensarling is scheduled to testify alongside Ms. Warren at the hearing.

Ms. Warren, who is noted for her longstanding push for tougher rules protecting consumers, is holding a field hearing next week in Nevada, where Senate Majority Leader Harry Reid (D., Nev.) is considering making remarks, people familiar with the matter said.

The Treasury Department has faced a steady drumbeat of criticism about the way it has handled the first half of the $700 billion fund, which Congress authorized in October to stabilize the financial system.

Government officials initially sold the program to lawmakers and the public as a way of purchasing troubled assets from financial institutions. Treasury Secretary Henry Paulson quickly scrapped that plan and has instead decided to use most of the money to buy equity stakes in banks.

Congress could move to block Treasury's access to the second half of the $700 billion fund, a prospect that government officials fear could send financial markets reeling.

House Financial Services Committee Chairman Barney Frank (D., Mass.) said Monday that Treasury would have to commit to using a large amount of the money to help prevent foreclosures in order to satisfy him. He said it would still be a tough sell with other lawmakers.

"With most of my colleagues, they'll need police protection to even ask for the money," he said. (Go for it Barney. Jerry! Jerry! Jerry! Jerry!)

Illinois Governor Arrested on Federal Corruption Charges

The Senate seat that the highly unpopular Democratic Governor was attempting to 'sell' is the one being vacated by President-elect Barack Obama. There is no linkage to Senator Obama, and we are sure that if there was the slightest taint the Justice Department would be putting it forward vigorously. Or pocketing it for a rainy day. Obama must address this quickly.

The first Democrat to be elected governor of Illiniois in 30 years, Blagojevich has been the target of multiple federal investigations. If Blagojevich is found guilty he should be punished severely. We will not jump to any conclusions, but Chicago politicians are often notorious for playing it on the edge, similarly but more crudely than their more sophiticated northeastern and southern cousins.

As the administration, and the Justice Department, turns from Republican to Democratic, looks for an increasing series of indictments for Republican corruption. There will be a pre-emptive series of pardons by the outgoing President Bush.

Such are the ways in times of general corruption. Anyone who thinks this is the domain of either party in particular is greatly mistaken. We are in a cultural crisis of integrity and honesty, overwhelmed by greed.

“I want to make money,” adding later that he [Blagojevich] is interested in making $250,000 to $300,000 a year, the complaint alleges. (Joe the Governor? - Jesse)

Top Five Candidates for Obama's Senate Seat


US Department of Justice
ILLINOIS GOV. ROD R. BLAGOJEVICH AND HIS CHIEF OF STAFF JOHN HARRIS ARRESTED ON FEDERAL CORRUPTION CHARGES
Patrick Fitzgerald, US Attorney
December 9, 2008

Blagojevich and aide allegedly conspired to sell U.S. Senate appointment, engaged in “pay-to-play” schemes and threatened to withhold state assistance to Tribune Company for Wrigley Field to induce purge of newspaper editorial writers

CHICAGO – Illinois Gov. Rod R. Blagojevich and his Chief of Staff, John Harris, were arrested today by FBI agents on federal corruption charges alleging that they and others are engaging in ongoing criminal activity: conspiring to obtain personal financial benefits for Blagojevich by leveraging his sole authority to appoint a United States Senator; threatening to withhold substantial state assistance to the Tribune Company in connection with the sale of Wrigley Field to induce the firing of Chicago Tribune editorial board members sharply critical of Blagojevich; and to obtain campaign contributions in exchange for official actions – both historically and now in a push before a new state ethics law takes effect January 1, 2009.

Blagojevich, 51, and Harris, 46, both of Chicago, were each charged with conspiracy to commit mail and wire fraud and solicitation of bribery. They were charged in a two-count criminal complaint that was sworn out on Sunday and unsealed today following their arrests, which occurred without incident, announced Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. Both men were expected to appear later today before U.S. Magistrate Judge Nan Nolan in U.S. District Court in Chicago.

A 76-page FBI affidavit alleges that Blagojevich was intercepted on court-authorized wiretaps during the last month conspiring to sell or trade Illinois’ U.S. Senate seat vacated by President-elect Barack Obama for financial and other personal benefits for himself and his wife. At various times, in exchange for the Senate appointment, Blagojevich discussed obtaining:

- a substantial salary for himself at a either a non-profit foundation or an organization affiliated with labor unions;

- placing his wife on paid corporate boards where he speculated she might garner as much as $150,000 a year;

- promises of campaign funds – including cash up front; and

- a cabinet post or ambassadorship for himself.

Just last week, on December 4, Blagojevich allegedly told an advisor that he might “get some (money) up front, maybe” from Senate Candidate 5, if he named Senate Candidate 5 to the Senate seat, to insure that Senate Candidate 5 kept a promise about raising money for Blagojevich if he ran for re-election. In a recorded conversation on October 31, Blagojevich claimed he was approached by an associate of Senate Candidate 5 as follows: “We were approached ‘pay to play.’ That, you know, he’d raise 500 grand. An emissary came. Then the other guy would raise a million, if I made him (Senate Candidate 5) a Senator.”

On November 7, while talking on the phone about the Senate seat with Harris and an advisor, Blagojevich said he needed to consider his family and that he is “financially” hurting, the affidavit states. Harris allegedly said that they were considering what would help the “financial security” of the Blagojevich family and what will keep Blagojevich “politically viable.” Blagojevich stated, “I want to make money,” adding later that he is interested in making $250,000 to $300,000 a year, the complaint alleges.

On November 10, in a lengthy telephone call with numerous advisors that included discussion about Blagojevich obtaining a lucrative job with a union-affiliated organization in exchange for appointing a particular Senate Candidate whom he believed was favored by the President-elect and which is described in more detail below, Blagojevich and others discussed various ways Blagojevich could “monetize” the relationships he has made as governor to make money after leaving that office.

“The breadth of corruption laid out in these charges is staggering,” Mr. Fitzgerald said. “They allege that Blagojevich put a ‘for sale’ sign on the naming of a United States Senator; involved himself personally in pay-to-play schemes with the urgency of a salesman meeting his annual sales target; and corruptly used his office in an effort to trample editorial voices of criticism. The citizens of Illinois deserve public officials who act solely in the public’s interest, without putting a price tag on government appointments, contracts and decisions,” he added.

Mr. Grant said: “Many, including myself, thought that the recent conviction of a former governor would usher in a new era of honesty and reform in Illinois politics. Clearly, the charges announced today reveal that the office of the Governor has become nothing more than a vehicle for self-enrichment, unrestricted by party affiliation and taking Illinois politics to a new low.”

Mr. Fitzgerald and Mr. Grant thanked the Chicago offices of the Internal Revenue Service Criminal Investigation Division, the U.S. Postal Inspection Service and the U.S. Department of Labor Office of Inspector General for assisting in the ongoing investigation. The probe is part of Operation Board Games, a five-year-old public corruption investigation of pay-to-play schemes, including insider-dealing, influence-peddling and kickbacks involving private interests and public duties...