Posted on 08/24/2007 12:18:12 AM PDT by TigerLikesRooster
Rate cuts won't cure ailing market
Ben Bernanke and his Fed cohorts will get cheap money flowing with a series of interest-rate cuts. But that won't fix the credit crunch.
August 23, 2007 -- 16:20 ET
Jon Markman
In a country whose populist heroes are kick-ass rebels Jack Bauer, Jason Bourne and Bart Simpson, it is perhaps only fitting that our latest would-be real-world savior is an economist and banker whose monkish beard makes him look almost countercultural.
Unlike his fictional counterparts who always save the day with a snappy remark or a chop to the throat, Federal Reserve chief Ben Bernanke is working from a terrible script that is doomed. He seems like such a nice man that it's a pity he could go down in history as the first one-term Fed chief in decades, not to mention the accidental steward of one of the world economic system's darkest periods.
It's going to take me a few moments to explain, so bear with me. Here's the problem: Last Friday, Bernanke earned a round of applause from the media by bowing to White House and Wall Street pressure and slashing the rate that the Fed charges the nation's least-creditworthy commercial banks for loans from the public till. He also allowed these sketchy banks to put up their worst loans as collateral and radically lengthened the time that they are permitted to hold onto these borrowings from the standard single day to a month or more.
(Excerpt) Read more at articles.moneycentral.msn.com ...
We’re all gonna die.
Only if you buy Chinese. ; )
That being said, there's a level of comfort knowing that this overheated market that was built upon false promises for loans is getting the smackdown it deserves. Then we can start the recovery process. In the mean time, people are going to bleed financially. I'm not beyond saying that many of them deserve it.
We got through the Clinton regime Dot Com bust in the late 90's. All that was left in people's hand for all their money was a stack of paper. At least with the current housing market and credit crunch, we have standing homes on mostly good land. Unless you live in Detroit.
What's going to continue to hurt us is all of the little socialist dictators at the local government level. Will they reduce property taxes to reflect the coming crash in property values or continue to kill local markets? I think the latter, and it's going to lead to reformation of local governments as people become aware of government "theft".
They're backed into a corner. Watch interest rates get slashed...Soon.
Sadly, most will not bother to read beyond your excerpt. They really ought to. It is their money at risk. But all most people want to do is blast insults into cyberspace.
I believe if they cut rates and or print large amounts of money like they tried already while inflation is not yet under control globally.. then investors will simply demand yet higher spreads.
Thats why I’m predicting the impossible.. we will see interest rate increases in the next few months, especially in Europe. That imo is the only way to get things moving.
I don’t even think the Japan option is available to us. A 20 year bust to try and work the debt off the balance sheets. Sure with Japan’s enormous productive capability it was an option.. arguably a bad option as Japan has been in a deflationary trap for 20 years.
[From the article]
” My guess is that the Fed will try to inject liquidity into the system many more times over the next few months with scant success. It will take years to unwind this mess, which is probably not a problem that monetary policy, by itself, can solve. On the other hand, who knows? Bernanke could catch a break and pull off a miracle recovery. “
Here’s where the author buys into the bait-and-switch...
What the Central Banks and the Fed are injecting into the process is NOT ‘liquidity’ — it’s more debt...
Harkening back to Econ 101 (lo those many years ago), ‘liquidity’ is measured by the amount left over from the sale of assets AFTER all debts have been settled.
Adding more credit doesn’t increase liquidity, it merely increases the debt load....
And - another remembered tidbit from Econ 101 - when debt outstrips the value of assets, that’s defined as ‘bankruptcy’......
Playing games with the terminoligy doesn’t solve any problems — it just hides them so people will feel better while they get worse......
No bailouts!!!!!!
if the US government bails out all the people that took out mortgages they cannot pay...why shouldn’t all other homeowners stop paying their mortgages and let the government pay for all those as well???
>>And - another remembered tidbit from Econ 101 - when debt outstrips the value of assets, that’s defined as ‘bankruptcy’......
You must’ve taken a different Econ 101 than most of us.
Bankruptcy occurs when you can’t service your debts, not when debt outstrips assets. Heck, my debt (house mortgage) exceeded my assets for many years. I did not go bankrupt.
Now, I’ll agree with you, that owing more on an asset, then the underlying asset is worth, is generally not A Good Thing. But that’s not what you said.
Further, 'bankruptcy' doesn't arise strictly from negative equity situations, but from the debtor's inability to service their debt. What FreedomPoster said.
*Chapter 7 (Liquidation) of Title 11 (Bankruptcy), US Code perhaps?
They ain’t making any more money. Money is the best investment you can make.
Ummm, that is a complete lie. The White House did no such thing. This fear-monger just wants to be able to blame his doom forcast on the White House. The guy is a kook and a liar.
” I’ll agree with you, that owing more on an asset, then the underlying asset is worth, is generally not A Good Thing. But that’s not what you said. “
You’re right — that’s not what I said... I think, though, that it’s what I meant... (posting in a caffeine-deprived state..)
And that gets to the ‘grass-roots’ nature of this situation — more and more of us great unwashed are waking up every morning to realize that we have very, very little personal liquidity... The sale price of our assets (not ‘book’ or ‘market’, but actual ‘sale’) would not retire all of our debts.....
Many of us are one missed paycheck away from bankruptcy - by your definition.......
Don’t forget the round of new State and Federal Regulation after the Parade of Widows & Orphans makes it to congess — I refer you to FIRREA after S&L meltdown and additional SRO regulation in the securities business after the 2000-2003 bear markets. And this one is just before an election, too! Oh, goody for us!.
Everytime some dolt cries in front of a camera, a wanna be dictator some where figures out another piece of the “let’s make everybody have to be a lawyer” puzzle. As predictable as it is maddening.
Yep, true enough.
Too many new cars, too many houses bought because “they can only go up!”, with too much leverage.
I’m posting caffeine-deprived right now, and I’m surprised it’s going as well as it is. Time to go make some coffee.
On a somewhat related note, the chicken farmers have been protesting the fact that they have to generate a huge “Security Plan”, because their chicken houses have large propane tanks for heat in the winter, and the Department of Homeland Security has decreed that they must produce a pile of Feddle paperwork, since said tanks could be used by TERRORISTS!
One of the least well understood Good Things that came from the Reagan Presidency, was the slashing of Federal regulations.
Look at the last paragraph and tell me this guy is a serious commentator? Rates were cut in Jan 01 because the economy was contracting. Then we had a little "íincident" we now call 9/11. The fed cuts are what reignited the economy and kept the recession short and relatively painless. This article is replete with "could happens", "it's possible", "it may well be". He fails to mention the strength of the underlying fundamentals of this economy and in fact the world economy. We have low unemployment, wage gains, corporate profits are high and corporate balance sheets have never been stronger with many large corporations eschewing the banks to finance their growth but instead using their huge cash positions to accomplish this. This article is all about the subprime loans that by all appearances are limited to about 1.5-3% of the ENTIRE mortgage market (talking about defaults here not simply late payments). The gloom and doomers among us seem to be saying that EVERY sub prime loan will go bad and that this will crush the entire economy in some kind of cataclysmic event. It is hysteria pure and simple.
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