I think, to some extent, the possibility of the above is getting priced into the credit markets now. Yields have rallied substantially, and have been explained away by “strong” economic numbers in the US, but the reality seems to be something going on below the surface, and protectionism seems like a likely candidate for the blame.

of the questioners, i only knew one (robin brooks of goldman — an ex-imf economist) — and I know him far less well than I know ted truman (IIE, ex-treasury, ex-fed)

Saw you on AEI Forum on the Falling Dollar; you did well…what were you impressions? Did you know any of those asking the questions?

CBs are buying treasuries because they have the money to do so. They have the money because they intervene in FX markets. They intervene in FX markets in large part because of current account surpluses and/or hot money inflows.

This is a significant chain of causation and consequences. You can’t explore the question of CB effects on interest rates separately from the existence of the other preconditions. The hypothetical of CBs not buying treasuries should really consider that the rest of the world would almost certainly be very different as well if this were the case – there is considerable potential for models that are quite naive in this regard and that overstate the case as a result.

http://economist.com/finance/displaystory.cfm?story_id=9267943 – Who’s the patsy?

Can it happen? Let’s see what occurs if Congress slaps the likes of Ryan-Hunter or Grassley-Baucus-Schumer-Graham on China. It should be interesting, to say the least. As Marvin Gaye used to sing, “Let’s Get It On.”

James Chanos, president of Kynikos Associates Ltd., is bearish on Moody’s Corp., the bond rating company whose biggest shareholder is Warren Buffett.

Kynikos sold Moody’s stock short, betting it will fall, Chanos said today. He said Moody’s may face lawsuits for keeping its ratings of loans to the riskiest home borrowers too high.

“That’s a ticking time-bomb,” Chanos, who oversees $4 billion at Kynikos, said in an interview in New York.

Buffett’s Berkshire Hathaway Inc. owns 48 million Moody’s shares, valued at $3.39 billion, giving it a more than 17 percent stake. Berkshire spent $499 million to buy those shares, according to the company’s annual reports. Given the potential problems ahead for Moody’s, maintaining that stake may be ill- advised, according to Chanos.

“Warren Buffett makes mistakes, too,” Chanos said…

Chanos, 49, one of the first investors to raise questions about Enron Corp.’s accounting, said Moody’s is “integrated into the whole underwriting cycle of structured finance,” or bonds based on the repayment of mortgages and other loans. “We believe they and the other rating agencies have been reticent to downgrade anything.”

CDO Boom Masks Subprime Losses, Abetted by S&P, Moody’s, Fitch
http://www.bloomberg.com/apps/news?pid=20601009&sid=ajs7BqG4_X8I

The three leading rating companies, all based in New York, say that policing CDOs isn’t their job. They just offer their educated opinions, says Noel Kirnon, senior managing director at Moody’s.

“What we’re saying is that many people have the tendency to rely on it, and we want to make sure that they don’t,” says Kirnon, whose firm commands 39 percent of the global credit rating market by revenue.

S&P, which controls 40 percent, asks investors in its published CDO ratings not to base any investment decision on its analyses. Fitch, which has 16 percent of the worldwide credit rating field, says its analyses are just opinions and investors shouldn’t rely on them.

Joseph Mason, a finance professor at Philadelphia’s Drexel University and a former economist at the U.S. Treasury Department, says the ratings are undermined by the disclaimers. “I laugh about Moody’s and S&P disclaimers,” he says. “The ratings giveth and the disclaimer takes it away. Once you’re through with the disclaimers, you’re left with very little new information.”

[...]

Credit rating companies help the financial firms divide the CDOs into sections known as tranches, each of which gets a separate grade, says Charles Calomiris, the Henry Kaufman professor of financial institutions at Columbia University in New York.

Credit raters participate in every level of packaging a CDO, says Calomiris, who has worked as a consultant for Bank of America Corp., Citigroup Inc., UBS AG and other major banks. The rating companies tell CDO assemblers how to squeeze the most profit out of the CDO by maximizing the size of the tranches with the highest ratings, he says.

[...]

CDOs have been a bonanza for the rating companies. In the past three years, S&P, Moody’s and Fitch have made more money from evaluating structured finance — which includes CDOs and asset- backed securities — than from rating anything else, including corporate or municipal bonds, according to their financial reports.

The companies charge as much as three times more to rate CDOs than to analyze bonds, published cost listings show. The companies say these fees are higher because CDOs are so complex compared with a single bond…