Julio: > Still, may I suggest that there's no free lunch here either? You > are proposing TCB to take positions contrary to the market to keep > the spreads tight. Aren't you assuming the markets wrong in selling > off?
Whether the market is right or wrong is undefined in this case, since I am as the Central Bank also in the market. I, as the Central Bank, have my own insatiable utility function and they, as the rest of the market, their own. What is right for my utility maximization problem may be wrong for other guys with other utility functions in the market and vice versa. It all boils down to who is stronger. In the event of a sell-off, they will not/cannot sell all of the 35 billion: they will sell a few billions, say, 10 billions. I have enough US treasuries to sell and then buy that 10 billion TT Eurodollar bonds, and they know it. Call it a credible threat, if you like, in game theoretic terminology. What is more interesting is that when I do this, I still have the same amount of US dollars in my reserves, except that rather than parking them in the US Treasuries, I am parking them in the Turkish Treasury Eurodollar Bonds. What Venezuela is doing with the Argentinian dollar denominated bonds is no different. What difference does it make whether I buy Argentinian Eurodollar bonds or Venezuelan Eurodollar bonds or Turkish Eurodollar bonds? If it is okay for Venezuela to buy Argentinian Eurodollar bonds, why is it not okay for Venezuela to buy its own Eurodollar bonds or Turkish Eurodollar bonds? > If it makes sense for TCB to prop up a Turkish Eurobond, why doesn't > that apply to any other trader as well As I said, what makes sense for my utility maximization problem need not make sense for others' utility maximization problems. Call this heterogeneity if you like, in the sense of Heckman. Sabri ____________________________________________________________________________________ 8:00? 8:25? 8:40? Find a flick in no time with the Yahoo! Search movie showtime shortcut. http://tools.search.yahoo.com/shortcuts/#news
