Selling bonds to households, easier if one understands the monetary system
Posted as a comment on florincitu.wordpress.com
“Thank you for keeping the forum as hypocrisy free as possible. Florin admits irony in his posts and sometime he is misunderstood and needs follow-ups. Therefore I’ll go for blunt acrimony in order to avoid further iterations.
I see that the current post spans at least two economic themes: 1) the conflicts of interest and the blurred accountability alter economic reasoning and decision making and foster the economic propaganda while diminishing the power of checks and balances and 2) the lack of real involvement and the capture of debate on economic policy generate marginal weak solutions to big but solvable problems.
1. The truth is that 4 out of 5 members of the fiscal council are influenced directly or indirectly by NBR (and not only at “philosophical” level). One is not independently judging (on/off) fiscal policy while still working for a supervised private bank. Even after the subtle irony of the Ministry of Finance, one policy should not dominate and supervise the others. The end result will be suboptimal for the well being of the nation the only benefit being a never awaking escape goat.
In the current situation the idea put forth becomes an ad hominem argument only in conjunction with the weak rebut. Claiming “facts are an ad personam reasoning” is very low on the scale of arguments. As an adept of academic debate I suggest something more along the lines of Adrian Severin excourse on bribery. This way a lot can be justified and one can still be happy and brag about it. Claiming the greater good as the root for a certain position is a try, but not a great one. I consider though more honest the ones put forth by similar characters in similar situations ( for the way to establish similarities with another occasion ) such as ” It’s for the kids”, “big mortgage to service ” , “I want to be loved” , ” my esteemed ones are doing the same”. As an audience still without a polyhistoric grasp of the realities, we would even admit a hedging position: not being able to bet if a certain private company will still be around for long, keep close to the state apparatus just in case the things turn sour.
I believe that while promoting ideas which can influence the economic policy and the accountability, preserving independence is paramount. Just being part of a propaganda machine is more damaging for the entirety of society than getting personal favors by using the budget of a state institution. I’m not so sure about the last one. But I am digressing.
2. There is a plethora of solutions to fund a budget deficit and the limit is just mental restrictions and scarce sources of inspiration. The retail tbonds are a weak marginal solution to a big but solvable problem. I consider it on the grounds of expanding the ecology of financial instruments or lack of ideas for a 500 word article.
There is a logic fallacy called hoc post ergo propter hoc. I risk being accused of falling for it but to me it seems that such a product is introduced now after the public fight with the banks and after mismanaging again the public debt. It sounds so similar with the economic mindset which triggered a control of tulip imports right after the Holand Schengen conflict.
If the argument is just why not have it even if it will not solve the problem I agree . Of course the same reasoning could have emerged earlier last week rather than now.
We had such an instrument for a while with limited success. With the current financing needs the impact will be even smaller.
The diversification argument is already operating as a reader correctly pointed out via other vehicles than banks.
There are funds sitting in cash denominated in both Ron and euro and this phenomenon didn’t emerge or accelerate yesterday. I doubt the quality of data from nbr and the cash related data was just discovered. The reason for my doubts is that despite such good data and flawless mental framework we systematically end up with distorted and behind the curve monetary and credit policies policies and farfetched forecasts. I do not consider that de decision process is flawed therefore the issue can only lie with the data.
The money sitting around in the grey economy will not come out with the launch of such an instrument despite the mentioned benefits such as flexibility, costs, tax and yield benefits.
The previous experience ( perhaps data is available with nbr on that) is that the largest chunk was coming from bank deposits. Such a move I bet will decrease the state funding via bills as the banks will decrease their exposure to tbills by more than the amount lost in deposits.
With such large reserves and in the current mood the taxation differential will be matched by the banks or by the mutual funds. Bidding up or segmented pricing is a way to go but it will just confirm that the instrument is the result of a blunt retaliatory mindset.
The limits of the banks were filled with club loans and private placements which were initiated by the same advisors as a way to convince the mfin not to tap the Eurobond markets in 2009 and 2010 more often and in larger amounts. This is one great idea after another but the same undiversified economic mind.
Tenor wise the financial players can outperform the population by far, provided the market operations will not tease out the market participants.
The same stickiness is being achieved via different routes and in the end rests with the credibility of the economic policies.
Is the tax benefit just a sweetener to open a new market or an unfair way to compete for the same funds ? Or is it a desperate sign of debt mismanagement and lack of fiscal buffer to the point of sacrificing tax revenues?
Crowding out is too elementary to elaborate on.
I agree with Florin on the reaction of the banks. Moreover a badly promoted instrument can increase the speed of transforming retail Ron liabilities into FCY ones.
In Romania we operate with a fractionary reserve system with a non instantaneous application.
Other markets could have a different take due to their evolutive positioning. What the others are doing is not working without careful consideration in all situations. At a more elementary level we were unique in many damaging aspects including keeping high interest rates throughout a deep recession.
Culture of saving is a long term process with a holistic flavor which should have started a while back and with architects of choice (regulatory agencies and institutions) working in that direction and not just free ridding the good times and finding excuses in the bad ones. One product as such should not even be mentioned without an articulated and encompassing strategy as distorts rather than crafts for the good.
In conclusion such a product should be part of the general financial product ecology but the timing, rhetoric and the expectations attached are hugely misleading. ” Lucian Isar