Jim Jubak points out that Big Ben, like the Greenspan God before him, is simply trying to shuffle one market catastrophe down the road to the next one. You thought balloon-note home mortgages were bad; that’s nothing compared to the balloon notes the Fed has floated Wall Street for more than a decade, starting with Countrywide’s crack-up, through the dot-com bust and on to today, Jubak says:
Over the last 20 years, first under Alan Greenspan and then Ben Bernanke, the Federal Reserve has taught Wall Street to expect a reward for bad behavior.
* Build a hedge fund on a mathematical model and a prayer, as Long-Term Capital Management did — borrowing $129 billion on just $4.7 billion in assets — and the Federal Reserve will organize a bailout.
* Bid dot-com stocks to the sky — as Wall Street analysts did with ever-higher target prices on Amazon.com (AMZN, news, msgs) and others — and the Federal Reserve will cut interest rates to 1% and keep them there.
* Put the money from that rescue to work to build skyscrapers of structured debt — until a collapse in the market for mortgages turns even low-risk AAA-rated debt spiraling to junk bond prices — and the Federal Reserve will cut interest rates.
Bernanke's Fed first cut rates in a panic by a half a percentage point in September, but the latest cut — a quarter-point on Oct. 31 — was in direct response to Wall Street.
Jon Markman says the Fed is, in essence, trying to delay a recession until after the November 2008 presidential election.
The old Fram oil filter commercial said, “You can pay me a little bit now, or a whole lot later.” Well, the next president’s going to have to do a lot of paying, and that’s another reason why I don’t get Democratic candidates not talking more about the economy. One of them could be having to lead a pretty big clean-up.
