Isn't it strange (not really) that the people that are now jumping all over Alan Greenspan for leaving rates too low too long earlier this decade (as it was the primary cause of the current deflating housing bubble) are the same people now screaming for the Fed to lower interest rates, primarily to bail them out of their falling equity positions. Where were these people six months ago? You (or I) don't have to answer that; we know the answer. These same people are also criticizing Mr. Greenspan for taking a job with Paulson & Co, as it was some kind of quid pro quo from Paulson for making billions betting against subprime. That's some conspiracy theory! If you want to criticize Mr. Greenspan it should be for talking to much, second guessing Mr. Bernanke's moves publicly. I'm sure Mr. Greenspan wouldn't have appreciated Paul Volcker hovering over him, questioning every move.
The other ironic item that hasn't received much press is that the Fed's actions in the front end of the curve are having the desired effect. LIBOR is back in its historical range and money market function is beginning to return to normal. Yet, as it is not propping the Dow, the Fed's success receives little publicity. The "experts" continue to attack the Fed for not lowering rates fast enough to keep the US out of recession, saying that inflation isn't as important as helping the economy (one notable TV ranter comes to mind). Talk a bout being a Monday morning quarterback. The Fed has to look at all of their mandated items, balance them out, and assess the short and long-term impacts. Somehow the idea the the Fed is supposed to do whatever it can to keep equity markets on a one way ride to infinity has become part of the mainstream consciousness (I know how, but there isn't enough time to go into it). That is just plain wrong.
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3 comments:
Holy Greenspan Bondguy, I was thinking of the criticism of the easy Greenspan Fed and how they want the Bernanke Fed to bail them out.
If you look at almost any "stimulus" package proposed by media talking heads or Capitol Hill ideologues (still haven't determined which is worse), they call for a bailout. "How can we restore home values and get these people either out of their homes whole or refianced affordably.
The real estate bubble was like the tech bubble in the sense that home prices were rising on Mr. Greenspan's "irrational exuberance". Back in the late 1990s, anything with "dot-com" in its name had to be sure winner. I have even heard pundits state that we need a return to the "Clinton economy" to we can have markets like the late 90s.
This time around, any property in a desirable or semi-desirable area was a sure path to wealth. One only needed to wait for trees to gro to the sky (about six months it was hoped) and one could flip the property for substantial gains. One never thought of the possibility that the Fed would one day raise rates. Even those who sold their homes for big profits, ate those profits buying replacement homes at higher prices during the bubble.
Here is a good indication of when to get out or not get in because a bubble is developing:
When people who have no expertise in the respective market and who have just recently become "experts" delve into the respective market, avoid that market like the plague.
If it was so easy to see the bubble coming and its demise on the horizon, how come people like the Bondguy and myself saw it coming, but the major firms did not?
1) Big firms relied on quantitative models to create their entrance and exit strategies.
2) There was little risk control or ovwersight as the money kept rolling in (much of it unrealized due to optimistic marks to market)and the powers that be at many major firms did not know what they were looking at anyway.
I took a page from your book, Herr Hilter, in the title. Unfortunately, I may have to retract this post as Paul Volcker has now seen fit to criticize Bernanke as well. However, it is in this weekend's New York Times Magazine, so most people won't read it, although they do have that new partnership with CNBC now that the WSJ has moved to the Fox sphere of influence.
I would never use an Alanis Morissette song. If I can read the times without being ill I ll check it out.
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