Monday, November 7, 2011

This Week

The things the bond markets need to watch this week are;

1. the referendum on public employee’s rights in Ohio,

2.  the report of the “super committee” in the US Congress on budget reduction and

3. The whereabouts of the customer funds in the MF Global bankruptcy.

Each is important for what they will tell us about the financial landscape over the near term.

The vote in Ohio is to restrict the collective bargaining rights of public employees unions and make the state workers contribute to their health insurance and pension. The governor pushed this law through the legislature and the opposition collected enough signatures to force a vote in a referendum. The financial problems facing Ohio are the same ones that face a number of states. This vote will serve as a proxy for the rest of the country as we try to put our financial house in order. Most rational people will agree the work place now requires employees (both public and private) to pay some portion of health insurance and make a retirement contribution. The Ohio law also restricts collective bargaining rights of the unions. Perhaps if the legislature passed a law just dealing with the fiscal issues and not the negotiation rights of unions there would not have been such an effort to overturn the entire effort.

The “super committee” in Congress is supposed to report on ways to cut spending, raise revenues and balance the budget. One side of the aisle refuses to accept a compromise in re revenue generation (higher taxes) and because of this it looks like nothing will be done by the committee. Across the board cuts in all areas of government might not be all that bad.

The bankruptcy of MF Global and the possibility of customer funds being missing will presage the regulatory environment going forward. The entrenched banking and Wall Street interest have been successful in preventing any restriction on business as usual. If anyone doesn’t understand that a business with 2800 employees just disappeared because they were allowed to make the same reckless bets that led to the 2008 financial meltdown and that once again the regulatory authorities who are supposed to protect the investing public have failed miserably they are just not paying attention.  Maybe this will wake up the idiots who believe that “Wall Street will regulate itself” and force them to join the reality based community.

Throw in a few European crises and it will be an interesting run-up to Veterans Day

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