Thursday, September 27, 2012

Widows and orphans have been locked out from safe investments

It used to be that the safest investments, the absolutely not-risky, that paid low interests, were reserved for what was known as widows and orphans, those unable to shoulder risk. And banks and other investors took care of the “risky”

Not any longer! With capital requirements for banks that are much lower when banks hold assets deemed as “absolutely not-risky” than when they hold assets deemed as risky, the banks have been induced to earn their return on equity among those perceived as “absolutely not risky”.

You tell me, what return could there be left for a widow and orphan from holding an AAA rated security when banks can hold those same securities against basically no equity of their own at all?

Capice? If not….