So this the second time I read about the Treasury moving towards making one of those historic "mistakes" that will come back to bite the American tax payer quite hard a few years from now.
The bad idea: floating rate bonds.
It's not really a bad idea though. It's a terrible, awful idea at a time where demand for US paper is so high, real rates are negative. But that, as it turns out, is the problem. The bankster community doesn't like losing money, but they need a super low risk instrument in the current climate, hence driving the demand that benefits the US Treasury but hurts their bottom line.
Creative as always in the ways of screwing the tax payer, they are asking for floating rates. The Treasury will gladly comply:
“Treasury plans to develop a floating-rate note program to complement the existing suite of securities issued and to support our broader debt-management objectives,”
And what are these objectives, exactly? Here is the spin:
... the Treasury needs to expand its base of investors, and the notes may appeal to those who are seeking to protect themselves from a possible increase in interest rates or faster inflation stemming from the Federal Reserve’s unprecedented stimulus.
Expand its base? I would think the base is pretty expanded if demand is so high for your paper that they are buying it at a net loss, even as you auction record amounts, wouldn't you? So where does this idea come from? Something called the Treasury Borrowing Advisory Committee:
The Treasury Borrowing Advisory Committee, the bond dealers and investors who meet quarterly with department officials, said it unanimously supports the introduction of the notes as soon as possible.
I'll bet they unanimously support it. They are the direct beneficiaries. The rates are at historic lows and can only go in one direction from here. Floating rate bonds are like shooting fish in a barrel for these guys. They sure wouldn't ask for them if rates were high, since then there would be a risk that they would drop. The question is, why would a competent Treasury pay any attention to this idea? Let's say, to be charitable, that Geithner feels too much empathy for his old friends.
This is my idea of institutional capture on steroids. If anybody thinks I am missing something here, let me know.