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Cash for debt

Published Thursday, February 26th, 2015

In the UK we are very familiar with our disappointingly greedy politicians being caught taking cash for questions or peddling influence. It has become such a problem, and one no doubt replicated in most “democracies”, that there is a strong case for it to become a regulated industry under the supervision of the FCA. These are after all the people who lecture everyone about ethics, moral values and transparency whilst often practicing what they preach against.

Cash for debt is a new development. Germany joined Finland in selling 5-year negative yielding bonds yesterday. They issued €4 billion in zero coupon bonds at 100.39 against which they will pay back 100 on redemption. Investors paid Germany to sell them debt. This would seem to reflect serious pessimism about the prospects for economic growth and inflation which sits uncomfortably with equity optimism.

It also reflects a discomfort with leaving cash in the banking sector which could go through another liquidity crisis if Greece or Ukraine blows up. We saw yesterday how fragile both situations are with Greek ministers threatening to renege on the privatisation promises made to the EU only 24 hours earlier and President Putin threatening to cut off gas supplies to Ukraine. Lithuania announced that it will re-introduce conscription because of Russian threats.

to read the rest of the report, please click here

Posted by David Hufton