Fire sales and liquidity

Robert Waldmann

Shorter US Treasury

“I usually shop there, but they are having a fire sale so we should go shop somewhere else”

When did they hire Yogi “no one goes there anymore, its too crowded” Berra ?

Direct quote of the US Treasury

“a wide-scale deleveraging in these markets and led to fire sales. As prices declined, many traditional investors exited these markets, causing declines in market liquidity.”

This is not a joke. The key to the Treasury argument is that asset prices are far far below hold to maturity values and that no one wants to buy them — that is, that no one shops during fire sales.

Also, others have noticed this but The Treasury officially rejects anathematizes and abjures the socialist doctrine of “supply and demand” enunciated by Marx’s great teacher Adam Smith.

They write “Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.”

That is competition among buyers drives down prices.

On the other hand, looks like we saved half a trillion since “he Public-Private Investment Program will generate $500 billion in purchasing power to buy legacy assets – with the potential to expand to $1 trillion over time.” so that’s something. Also the FED will take part of the hit which is nice since the FDIC is desparately needed, underfunded and has to ask Congress for money instead of just printing it.