Vultures coming home to roost

The government has a plan

Looks as if the stock market thinks the government’s (vague at this point) plan will save us all.

But…not so fast.  Those with an attention span of more than 30 seconds will question how, exactly, the government is going to improve anything about the “crisis.”  My favorite synopsis so far is Lee Adler’s:

“The gist of the story is that they are going to ban short selling, and create an agency to buy all the bad paper, which isn’t even possible because there’s not enough money to buy all that crap even if every government in the world participated. Hell, China and Russia already own a ton of it, and look how great they’re doing. So let’s just borrow a bunch of gazillions from them and make indentured servants out of the US middle class for the rest of their lives, their children’s children’s lives, yea even the lives of all the children of the US, South Africa, and Iraq, such as and whatnot till the end of time. Hey, it’s only money after all.”

http://wallstreetexaminer.com/?p=3158

Barclays Capital warns of worldwide financial storm, says US Fed’s credibility is “below zero”

“Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall “below zero”.

“We’re in a nasty environment,” said Tim Bond, the bank’s chief equity strategist. “There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth.”

United States Treasury promises to pay the Fed for Bear Stearns losses

This is us folks.  The US government, i.e. taxpayers, guarantees the NY Federal Reserve loan of $29,000,000,000 to JPMorgan/Bear Stearns.  Call and write your congressional representatives if you disagree.  Otherwise, you need not do anything.  Click to read the letter →  treasuryletter0308.pdf

Fed chart shows current borrowing schemes

Click through to see New York Federal Reserve Bank’s March 2008 chart explaining TAF, TSLF, among many others including acceptable collateral for each type of lending:

forms_of_fed_lending.pdf

 Jim Rogers’ reaction to Fed moves on Bloomberg  

U.S. Treasuries riskier than German government bonds for 1st time

“The risk of losses on U.S. Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves, credit-default swaps prices show. <snip> The U.S. government is not immune from the consequences of the credit crisis,” said Fabrizio Capanna, BNP’s head of high-grade corporate trading in London. “Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.”’ http://www.bloomberg.com/apps/news?pid=20601087&sid=aVl4JGYmkX0M&refer=home

Ben what are you doing?

 hat tip for photo to fintag.com

The Fed running low on ammunition?

The Federal Reserve has certain assets — about $800 Billion in Treasuries.  Once it lends away the additional $200 Billion announced today, and counting the TAFs (Term Auction Facilities), about one-half of the Fed’s reserve of Treasuries will be gone.  This chart shows the Fed’s reserves before this additional $200 billion is given out, so you’ll have to continue that line downwards to imagine what it’ll look like by the end of March:

Central banks cannot prevent unraveling of global economy?

Satyajit Das opines that the tools available to central banks are inadequate to address the scope of the global economic problems we face.  The black box or shadow economy may involve the unwinding of “innovative” financial products/derivatives such that monetary and fiscal policy simply will not work this time. 

http://www.boston.com/bostonglobe/ideas/articles/2008/01/27/the_black_box_economy/

What would Milton Friedman say to Ben Bernanke?

Milton Friedman died in 2006.  If he were living, what would he say about the current economic situation?

It may be instructive to review what he said about the dot.com bubble in 2000.  Friedman believed that in the event of an equities bubble burst, the Federal Reserve should pour in money to cushion the economy – but not indefinitely.  For example, using the Great Depression as an example, when the bubble burst in 1929, from peak to trough, the equities market lost about 80% of its value over about 3 years.  Friedman believed that had the Federal Reserve followed “correct” policy, the market would have bottomed sooner and not fallen so far.  Friedman was quick to point out that precisely how much and how long to “pour money in” is tricky to figure out, and that the Fed should not pour money in for so long that it creates another bubble. 

Here is part of the transcript from a Hoover Institution (by Peter Robinson) interview with Milton Friedman recorded March 10, 2000:

Bernanke, looking jittery and haunted, testifies – open comment

Watching this testimony live, without benefit of transcript, Bernanke incredibly is saying there will NOT be a recession!  Forecasting slower growth picking up in late 2008.  Some decent questions from Congresspeople re: why would a rebate actually improve economy?  Shift from pro-savings economy to pro-debt, etc.

Comments? 

Why is Bernanke talking so optimistically (yet looking terrible)?

What will Congress do on fiscal side?

Will Bernanke lower rates on 1/30 and if so why?

Cheers!