It's Ugly Out There. What's Washington Waiting For? Posted on: January 20, 2008 The US stock market is off to one of its worst starts in history, credit is shrinking, and home prices are declining at rates never seen before. The current credit and housing crises have been on the front pages of even non-business newspapers since last summer. Itâs a mess out there. At the same time, our nationâs leaders in Washington are still assuring Americans that they are monitoring the situation closely and will be ready to act in order to avoid any negative consequences of the current credit crisis. What are they waiting for? Several months into this episode, the lack of decisive action is unnerving and apparent to even the most casual investor. This is a real crisis of confidence. No matter what your opinion of the proper steps, if any, that are needed, there is no denying the fact that financial markets hate uncertainty. Unfortunately, thatâs exactly what they are getting. US markets have historically been regarded as a safe haven. Investors all over the world have placed a premium on US assets knowing that when faced with crisis they can expect clear and decisive action. Following the 1987 crash, The Brady Commission was formed to root out its cause and prevent it from happening again, but this was only after the Fed took decisive action. Before the markets opened the day after the crash, the Fed had already taken numerous steps to provide liquidity and maintain confidence in the financial system. As a result, the Dow never looked back. In the fall of 1998, when faced with the failure of Long-Term Capital and its threat to the financial system, the Fed summoned the heads of all the major banks and brokers to New York to help engineer a fix. By the end of the year, the market was once again at all time highs. More: http://seekingalpha.com/article/60816-it-s-ugly-out-there-what-s-washington-waiting-for
This time the same major Banks are so deep in the hole they are begging to SWFs in China, Singapore, & middle east to invest/save them.
Dear Mr. Bernanke, Dear President Bush, Dear Congress: Please Watch This Commercial Talking the talk and not walking the walk is about the worst thing that the Fed, the President, or Congress can do. When you say that rates are going to be lower in the future or say you're going to provide an economic stimulus package, it causes economic activity to freeze until these things actually happen. Why would anyone borrow money if they know rates are going to be lower in the future. If you're going to cut rates, do it. If you're not, let the market know that you're not. This can all be summarized in the great Royal Bank of Scotland commercial below: <object width="425" height="373"><param name="movie" value="http://www.youtube.com/v/hWt5xt72DRE&rel=1&border=1"></param><param name="wmode" value="transparent"></param><embed src="http://www.youtube.com/v/hWt5xt72DRE&rel=1&border=1" type="application/x-shockwave-flash" wmode="transparent" width="425" height="373"></embed></object> http://seekingalpha.com/article/60816-it-s-ugly-out-there-what-s-washington-waiting-for
They'll intervene one way or another today. Ben just isn't the right stuff. This is a job for Paulson, Geithner and BOJ.
The problem is that they are stepping in way to early, many think they are stepping in WAY tooo late (cramer). The problem is that the reason why we are in this situation today is due to the fact of how they treated the situation back in 2000-2001 when the economy was in a small recession, they took rates down to historical lows and handed out loans to anyone and everyone, they created the real estate bubble along with other major asset bubbles across the board just to get the economy up on its feet again. They created SIVS and CDOS and thought that handing out money and driving liquidity to extreme levels was going to be the best thing that they could do for this economy. Private equity thought they were on top of their game buying out numerous companies at inflated prices. The stories go on and on and on. Its going to take many years for this to fix "itself". The federal reserve can only take rates down so low before they create what they are set out to prevent, which is INFLATION. To step in now and try to prevent it now is going to do more harm than good for this economy. You can thank Greed for creating these problems.
Economic Normalcy is when savings are rewarded at a rate at which living everyday lives for the average saver can happen. The creation and propulsion of debt, and the favorable treatment thereof, versus that of savings, has steered the World´s economy away from a period of normalcy. Valuation methods have even boiled down to the notion that the true value is if the entity can cash flow, no matter how the cash is accounted for. If this is the case, then why is there a day of economic reckoning hanging over everyone´s heads? Productivity and Savings are key to getting back on the right economic track. The only way to do this, is to either take the structure that is in place and adhere to its very underpinnings, or to change the structure itself. Establishing core wealth all the way from the individual to the working corporate entities is now more than ever the name of the game...and thus getting anyone who still has money that Adam´s Invisible Hand has not already taken to believe the story. In the case of the US, it should change the structure itself such that the changeover period can set the stage for a far better future economic environment, rather than just trying to adjust to more of the same... Change the Structure Replace the IRS with a consumption tax Increase the use of the Internet in Government, Business, and Education Eliminate oil as a useful resource Make available on a regional basis, stock offerings which basically means no debt, interest free loans to the most worthwhile enterprises such that the cost of money leaves the productivity equation... Enhance via the second level internet electronic stock exchanges which will make its shares available 24/7 worldwide for a nominal per transaction fee... Mandate electric and nonfood competive sources of energy Mandate wealth distribution by employee performance, and establish fairness on all pay levels.
The problem is what do you do right now - today. The protocol is ALWAYS intervene and cut. The reason has nothing at all to do with economics or whether it works or not. That's what overeducated fools worry about. Instead, psychology is what matters and I dont recall seeing it this bad. See, the only thing worse than bleeding George Washington would have been letting it get out that you didn't. What world markets want is LEADERSHIP from and CONFIDENCE in US authorities. That's the message being sent by Nikkei, Dax and the YM and ES contracts that just closed. Instead what they got so far was those jackasses Pelosi and Bush handing out 800$
Libertad and S2007S, i mostly agree with your posts, not that it matters, but Libertad i'm afraid i'm not intellectually up to understanding your remarks in entirety. S2007S, you had remarked that todays problems go back to the way the Fed behaved in 2000-2001, and perhaps that's part of it, but i rather think the late 2002 period was more important in that regard. That's when the Fed really went berserk with historically low rates in a now unbelievable overreaction to a mild recession that we were already coming out of. It seems only a very domineering Fed Chairman could have pushed that through, and you have to ask why, especially given the lessons that should have been learned from the just preceding internet bubble. Looking at the facts: Greenspan is a Republican and a Zionist; Bush was in a bit of trouble; Greenspan knew that Bush would give Israel a blank check but a Democrat (other than Liberman) would likely not; and finally Greenspan must have realized that there wasn't all that much time before the 2004 election to see a big-time response in the economy to a rate cut. Though it would be impossible to prove, and Greenspan would never admit it, and it's immaterial whether Greenspan's actions were conscious or subconscious, i think the reason the Fed response in November of 2002 was so extreme, and out of tune with what could have been reasonably expected, can be fairly attributed to the above littany . And, of course, there were no complaints from Wall Street. They loved it, and Big Al was their new favorite person. Well, we've seen where this excess on the part of the Fed led. I can't blame the mortgage mess entirely on Greenspan though, because i don't think that in November of 2002 he could have reasonably foreseen what virtually unregulated securitization of mortgages would eventually lead too, but after the hand writing was on the wall, and it has been there a long time now, why in hell didn't he act? Instead, when he was queried by Congress about a growing real estate bubble, he just gave us more double speak and the old "... on the one hand, but on the other hand, bla bla bla." Now, ironically, he is flitting around on Bernanke's watch warning that the sky may fall.