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March 3, 1995
Mortgage rates found a bottom this week. Thirty-year rates hit 8.75% (at "zero and zero") several times, could not go lower, and in today's trading are pushing back towards 9.00%. Until the economy and the Fed declare themselves further, this trading pattern suggests that mortgage rates will bounce in a range of 8.75-9.25%.
If there is any immediate cause for a reversal in the bond market, it is some serious weakness in the dollar yesterday and today. In the last year, the buck has fallen 16% against the D-mark, and 9% against the yen (94 to the dollar today, versus 235 to the dollar in 1987, a 60% drop).
Economic data showed a slowing economy, which should have helped rates. The February Purchasing Managers' Index fell hard, down to 54.5% from 57.9%, existing home sales dropped 4.5% in January, and consumer confidence fell for the second month in a row.
Ethics, or rather the absence thereof, dominated financial news this week.
Barings, PLC was bankrupted by Mr. Nicholas Leeson, who should hope very much not to be extradited to Singapore. If spray painting a car gets you six lashes, how many do you get for misplacing a billion dollars of someone else's money?
Barings stories have focused on derivatives (nope: Leeson's losses were simple trades), Leeson's greed (ordinary), and a lack of internal controls (routine: see Kidder, Peabody, or what's left of it).
Barings problem, and ethical absence, was at the top of the firm. When asked why the firm didn't detect Leeson's folly before it was too late, a senior Baring, descendent of the founder, replied: "We thought it was a client's trade."
Right there is the nub of the problem in financial markets today. Lose a billion dollars of a client's money? No sweat. But, "Good heavens, you mean the money was ours?!" Only then do losses matter.
The other ethical matter was the unraveling of the balanced budget amendment charade. First, to attract votes, the amendment was made unenforceable by the judiciary, which means it was not an amendment at all, just a bit of food spilled on a stained constitution.
Then amid agonized rivers of crocodile tears, the last undecided Senators (Democrats, of course) said they would love to vote for the "amendment," but only if it guaranteed current social security revenues and benefits.
Every single person in Congress, and the president know full well that the budget can't be got under control without limiting social security benefits. We are already raiding social security revenue to the tune of $80 billion each year to keep the deficit "down" to $200 billion.
These people richly deserve the same ethics injection which Mr. Leeson will receive. Rattan cane, on the fanny.
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