What was the incompetence? Bernanke, through a variety of measures not including interest rate changes, may have prevented a total financial collapse over the past 2-3 months. The housing mess and financial crisis was brewing for a long, long time - well before Bernanke got started.
A $5 Trillion dollar (45%) increase in the M3 since 2006, all promoted by scarily low interest rates. We're not going to have total financial collapse, at least not yet. We might have some overextended banks collapse, and of course that's more important to the Fed than the economy as a whole. You want total collapse? Keep pumping money into this mess.
I too am viewing an assload of financial data - two screens worth. My conclusions are that things will either get better, worse, or stay the same. If I knew which I'd be a lot richer. So would the fed, as robbie said....it's no easier to call a bottom than to call a top.
I didn't realize we were arguing. As I said, I'm not pretending to KNOW anything...just speculating. What should I say now? Move Francis to the 2!!! Draft VY!!! Trade _______!!
The one thing you can count on: None of us keyboard warriors have the right answer. I think I can recognize the wrong answer in this case, but please don't put me in charge of that mess. I can't even do better than the man I'm asking to be impeached. I'll just leave it at this. The Federal Reserve should be very prudent in changing the reserve rate at all. A Central Bank that set the reserve rate at a moderate number and left it alone would have very little impact on the business cycle, and would not promote the boom-bust cycle that we've had for 90 years.
They don't have more information than the market (well, not much more), but I would very happily argue that they have more information and knowledge than some people on this BBS who post in threads about impeaching bernanke, and then post in threads about nairing their balls. Major is right. He may have prevented a giant collapse. We can't be sure, but it was looking horrendous. He tried the traditional rate cuts. When that didn't work, he allowed banks to use other types of collateral and opened it up to I-banks. They were all attempts to bring some liquidity to the market (it was ALL gone).
If you guys want something to keep you up at night, google "Engdahl Financial Tsunami". I don't know the extent of how right he is, but as a phd in Econ, he has a better idea than me. This problem in our markets stemmed from our over reliance on numbers and mathematical formulas. The bat**** scary part is that the fed doesn't really have the tools to correct the root of the problem. They on have tens of billions to influence a runaway train valued in the tens of trillions.
When Bernanke took over in early 2006, the Fed was in the midst of raising interest rates and he continued to do so. What did you want him to do? Raise the rates more quickly and just accelerate the mess we're in now? I think you severely underestimate what would have happened if Bear Stearns and other investment banks collapsed. You'd have a run on banks the likes of which we've never seen - partly because of the overextension of credit we have right now. Yes, it might solve the long-term problem - but you'd create a worldwide economic depression in the process. Much better to create a soft-landing and then deal with the systemic problems in a more functional environment. You can't solve system financial problems if your basic credit institutions aren't functioning properly and/or people can't trust the security of their money in those institutions.
I don't really accept your premise, but for sake of argument I will. If Bear Stearns really wields that much power over the world economy, we have got to decentralize that immediately. God forbid that someone corrupt who would choose to use that power would gain control at J.P. Morgan. In the process of bailing out the banks (which we did by debasing the currency further), the Federal Reserve has been granted even more power. Even so, your "soft landing" isn't nearly as benign as it sounds. It is an attempt to inflate our way out of a recession. It worked in the seventies, but I can't imagine that the extended period of stagflation was preferable to the recession that we avoided.
.25 tomorrow further inflating of $-supply this year en-route to new highs for the dow industrials, dow transports, and s&p 500.....maybe for wilshire as well, definitely not for nasdaq financial collapse delayed for now, but who knows for how long
2 assloads = 1 *****loads 2 *****loads = 1 fu*kton Nice little conversion chat for ya. In all seriousness, I believe that the Fed is being reactionary in their decisions rather than being proactive. This tends to be a recipe for a disaster.
Boone Pickens disagrees. Although a call of 125 is not very bold at all. http://www.cnbc.com/id/15840232?video=726059896&play=1
What is more important than tomorrow's rate decision is the wording in the FOMC statement. If the wording emphasizes inflation more so than credit worries, you know we are at the end of this rate cut cycle. This will spike the dollar and cause commodities to tumble. But if the wording emphasizes the credit crunch and faltering growth, you can expect the dollar to resume its downtrend since this will indicate further cuts down the line. Tomorrow is all but guaranteed a 25 bps cut, what is unknown is the possibility of future rate cuts. As with all things market related, its not the actual event that moves the market but rather expectations of future events.
Two things - one, I don't think it's that Bear Stearns has that much power. It's that you were in a situation of near-panic already, and that had the potential to be the trigger point that starts a run. Under normal circumstances (say, two years ago), BSC failing is an isolated event. Under the current credit circumstances, it had the potential to be far more. But more important, lets look at risk/reward. If the Fed does something and it turns out to be overblown, you've just delayed and maybe slightly worsened the long-term outlook. If the Fed doesn't do anything and it turns out that it WAS the trigger point, all hell breaks loose. Not doing anything would have been like playing Russian Roulette with the world economy.
The big deal with Bear Stearns was its 10 trillion dollar holdings in credit default swaps and other derivatives that would've wrecked its investors and counter parties had the company vanished into thin air. Even though it's 10 trillion in notational value, it would still cause havok in a financial world built on credit. Engdahl Financial Tsunami
As Major said, Bear didn't wield power by themselves. They wielded power because if they went down, then the integrity of the financial system would have been undermined. A couple days before Bear went down in the public markets, people were starting to avoid doing business with another i-bank for fear that they would become the next Bear. If the Fed hadn't stepped in, the other bank would have gone down. If 2 of the bulge bracket banks went down, what happens to the financial markets? It's not just a bail out of the banks - it was a bail out of the world economy.
