1Q 2010 Investment Perspectives

April 15, 2010

Proposed Financial Reform
Note: this article was written in early April, before various changes to the proposed legislation were made.
As we stand in the aftermath of the most severe economic downturn since the Great Depression, we must reflect upon several of the causes that led us to this point.  The primary causes of the downturn were a result of poor risk management, oversight, and regulation. In response to these factors, lawmakers have proposed a bill that attempts to address several of the shortcomings in our current regulatory/financial system. The bill authored by Chris Dodd and the Senate Committee on Banking, Housing, and Urban Affairs intends to address the following primary issues:

• Protect/educate consumers
• Identify systemic risks
• Eliminate loopholes
• Streamline bank supervision
• Input on executive compensation
• Transparency and accountability for credit rating agencies and financial products
• Strengthen oversight to prevent fraud and manipulation

Today’s Environment: An Unusually Steep Yield Curve
Today’s interest rate environment is unique in American post-war economic history. With the federal funds rate at the zero lower bound and likely to stay low for an “extended period,” the yield curve is as steep as it has ever been since the 1950’s.

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