Lesso_20070819The WSJ has what appears to be an "All Fed, All the Time" edition out this morning. A combination of articles does a very good job explaining how the financial system came to this point in time, what the Fed’s role is in resolving this as well as past crises, and what risks still face the market. The four articles noted give you all the details.

As we have noted in the past, Fed Chair Ben Bernanke has been stuck with the thankless task of cleaning up after Alan Greenspan. The cut to the discount window rate is merely the first step.

I see the Fed trying to accomplish three primary tasks:

• Restore Investor Psychology
• Fix the seized up liquidity
• Cushion the blows to a slowing economy

Believe it or not, those items are the easy part. Where the complication comes from is trying to accomplish the above while simultaneously avoiding:

Rekindling inflation
• Resurrecting the Greenspan Put (i.e., "Moral Hazard")
• Preventing a meltdown in the US Dollar

These are real policy difficulties that may be beyond any mortal’s ability to control. When the Fed cuts their funds rate from 5.25% to 5.0% in the upcoming September FOMC meeting, we will get the first read on well they can maintain this balancing act…

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Sources:

How a Panicky Day Led the Fed to Act
RANDALL SMITH in New York, CARRICK MOLLENKAMP in London, JOELLEN PERRY in Frankfurt and GREG IP in Washington
WSJ, August 20, 2007; Page A1
http://online.wsj.com/article/SB118755980713302186.html

Lessons of Past May Offer Clues To Market’s Fate
E.S. BROWNING
WSJ, August 20, 2007; Page A1
http://online.wsj.com/article/SB118756974903802456.html

The Fed’s Job
BRIAN S. WESBURY
WSJ, August 20, 2007; Page A11
http://online.wsj.com/article/SB118757483274002562.html

Credit, Profit Woes May Hit Stocks Even if Fed Acts Fast
PETER A. MCKAY
WSJ, August 20, 2007; Page C1
http://online.wsj.com/article/SB118756183733902284.html

Category: Credit, Currency, Data Analysis, Derivatives, Federal Reserve, Markets, Psychology, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

58 Responses to “Catching up with the Fed’s Thinking”

  1. Eclectic says:

    Top 3 get easier to accomplish…
    …Bottom 3 get easier to avoid…

    …All with worldwide economic weakening. Otherwise, tough.

  2. SPECTRE of Deflation says:

    Barry, it’s a rigged con game. Pulling the stunt of reducing the discount rate BEFORE the open was out and out theft. They could have done the same thing after the market had opened, but instead opted to be a market maker for anyone long. Their is no efficient market.

    We have gotten to the point as a country where an 8% decline on the Dow cannot be tolerated. It’s an indictment of the FED policies of inflating different asset classes to keep the illusion of wealth going for the common sheeple. Basically, we all buy shit from one another while producing jack. Liquidity is actually nothing but debt once the asset class of choice falters.

    By the way, a second German Bank has to be bailed out from what I have read this morning. An excerpt from immobilienblasen Blog:

    The most important fact is that in the end the German taxpayer is on the hook for all the losses that will hit the Sachsen LB. The irony is that the German Sparkassen ( almost 100 percent publicly owned) that are largely the owners in tandem with the states ( see complete overview) are very conservative their own mortgage lending to the Germans ( usually 60-80 percent LTV). Now they have to provide liquidity because some Landesbanken ( watch for West LB …) have invested in the US mortgage market where 100 financing with teaser rates etc are the norm….. Nice oversight from the Bafin, local government/owners, board etc…….The provided liquidity is larger than the annual budget from the state “Sachsen”!

  3. SPECTRE of Deflation says:

    One other point. The illusion of the market being a discounting mechanism for the future has now been blown out of the water.

    If the market were truly a discounting mechanism, how could we possibly be where we are today?

  4. Winston Munn says:

    Liquidity does not solve the problem of leveraged overvalued assets – hence, a solvency problem and not simple liquidity.

    If a turd is wrapped as a wedding gift, easing credit terms for its purchase don’t increase its value or hide the smell.

  5. Eclectic says:

    Winston,

    That’s why r-e-v-e-a-l-i-n-g the turd and acknowledging what it is… and writing it down to its worthlessness is the o-n-l-y way to save the integrity of the financial system.

    Why?… Because although it may be counterintuitive to most people, revealing the failures in the economy by exposing exotic, esoteric, hidden and disguised markets (the *Greatest Stories Will Yet Unfold*) will actually enhance the opportunity to install confidence in the financial system itself.

    Being unable to rely on the integrity of the financial system makes it near impossible for market participants to evaluate (or estimate) the marginal efficiency of capital expenditure. And why is that true?… because otherwise market participants never know when they might be blindsided by the reckless unrestrained actions of others.

    Volcker k-n-e-w this… whether academically or intuitively… he knew it.

    Japan stayed in a pretty severe recession for years because they couldn’t understand this.

  6. Winston Munn says:

    Eclectic:

    Precisely. How can risk be priced when its composition is unknown?

  7. UrbanDigs says:

    While the fed definately had a change in bias with the accompanying statement of fed cut in discount window, I dont think its absolute certainty that the fed cuts at Sept meeting.

    Good chance, yes, but not a certainty. If news up until then is relatively lame, and if equity markets bounce back a bit, they may not cut so fast. They may cut more in discount window before they let loose in funds rate.

    Thoughts?

  8. Eclectic says:

    It can’t under any circumstances… but what’s your question in reference to exactly?

  9. D. says:

    National bank of Canada is buying back 2 billion $ worth of CP from its mutual fund investors. Its equity is only around 5 billion and PCLs have been running at less than a 100 million annually. If 10% of CP must be written off that’s 200 million dollars. More than twice the current PCLs!

    It looks like banks, in order to stabilize markets, will be forced to bring a lot of risk back onto their books… watch the reserves dwindle!

  10. Eclectic says:

    UrbanDigs – agreed.

    Except for this pesky liquidity run, the macro is still solid. They won’t cut fed funds, in my opinion, except for a much worse crisis or a significantly weakening macro.

    BTW, to all:

    BLS’s BED survey did come in last week at (I think) 516,000 net new jobs during last year’s 4th quarter. FYI, that was a general support for the notion that employment was not weakening during that quarter.

  11. will rahal says:

    Mr. Bernanke did inherit a credit bubble.
    I did some work on the relative leveraging of the consumer and
    the corporate sector It appears that the borrowing capacity
    of the consumer peaked a couple of years ago but its reative debt
    level has much further to drop.
    See this graphically at

    http://wrahal.blogspot.com/2007/08/de-leveraging-of-consumer.html

  12. Eclectic says:

    Sorry, my comment beginning “It can’t under any circumstances…” was part of a response to Winston and a question directed to him… not a response to UrbanDigs.

  13. Marcus Aurelius says:

    It’s fairly clear that the fundamentals underpinning our economy are not sound. That said, what’s keeping us aloft? Answer: Hot air.

    If you have a parachute, put it on, and get ready to jump.

  14. APB says:

    Barry,

    “When the Fed Cuts… Rates …in the upcoming September FOMC meeting”, and NOT “IF the Fed cuts…”??

    Do you think that the Bernanke put is for real, or you anticipate some serious carnage to take place in the next month?

  15. michael schumacher says:

    That hot air is also trying to telegraph cuts at the up coming meeting. GS did it on friday now Lehman..

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aojsxsLqoZTY&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=aojsxsLqoZTY&refer=home

    Ya know if you say it enough times then the “masses” start saying it……..

    Utter crap……take the medicine like the rest of us….

    Ciao
    MS

  16. SPECTRE of Deflation says:

    It’s contained folks. LOL!!!!!!!

    Sachsen falls victim to credit crisis

    Sachsen LB, the German publicly-owned bank, on Friday night became the latest victim of the current credit crisis when the Landesbank had to be bailed out because of its exposure to the US asset-backed securities market.

    The bank, which is based in and owned by the German state of Saxony, said the German savings banks association had stepped in and taken over a €17.3bn credit facility to a special investment fund, or conduit, that Sachsen LB had funded and managed.

    The conduit, called Ormond Quay, borrowed in the short-term commercial paper market and invested in longer-term structured credit instruments. It was supported by a credit line from Sachsen LB.

    The rescue was triggered when commercial paper investors refused to refinance Ormond Quay and Sachsen LB was unable to provide the credit facility it had pledged.

    The bailout came just one week after the bank had reassured the market it had “sufficient liquidity” and followed the bailout of IKB, the German lender to small companies, whose rescue three weeks ago sparked the crisis in credit markets.

    “The ongoing market disruption in selling asset-backed commercial paper resulted in there being doubt on securing funding for the Ormond Quay conduit supported by Sachsen LB with a volume of E17.3 billion ($23.2 billion). As a result, the credit standing of Sachsen LB has been called into question,” the bank said in a statement last night.

    The Sparkassen-Finanzgruppe, the savings banks association, provided the credit facility of E17.3 billion to secure the liquidity at the Ormond Quay conduit. The bank said the facility made it able to fulfil its financing obligations resulting from the other conduits it supports, such as Georges Quay and Sachsen Funding, “at all times.”

    The rescue was an embarrassing step-down for the bank, which only one week ago publicly reassured investors of its position in the market, following speculation about Ormond Quay. On August 10 Sachsen LB said it saw “no indications” for increased probability of default for the ABS structures managed by its subsidiary.

  17. Charles says:

    I’m confused. How does cutting the Fed Funds rate accomplish the top 3 tasks, why would they do that? All I see it doing is setting off the bottom three risks. That seems to be what the second WSJ article is saying as well. Is there something I am missing?

  18. ari5000 says:

    I guess in a Ponzi scheme — if you kept a panic from occurring via intervention you could help those who know what’s what to get to the window to cash out before those who were panicking and stopped find out that panicking was actually the right emotion to have in the first place…

    Another screw job on the public.

  19. UrbanDigs says:

    Charles – It will only help # 1 and # 3 of the first three. It wont help with liquidity squeeze amongst banks, that is why the fed is ading liquidity and cutting discoutn window; to help banks directly.

    Any fed cut will be lagging anyways (about 10-12 months) and will ultimately mostly help consumer. A 25 basis point point cut may help psychologicall and ultimately may help cushion and future slowdown, but in the end, it wont be enough if things turn real bad. They will need a campaign of rate cuts to do the job, and right now, they dont knwo enough about how bad things are to start.

  20. Florida says:

    I don’t know that Sachsen was it, but I became increasingly convinced over the weekend that there is some bit of news out there that the Fed knew about that we, the public, didn’t when they announced the cut. Why? Here’s my reasoning:

    1. Thursday night, Bill Poole says that the Fed will only cut rates if there is something catastrophic out there.

    2. That same night, the Fed has an emergency meeting.

    3. The announced cut was reportedly requested by the San Fran and NYC branches of the Fed. San Fran is understandable, given the real estate market in Cali. Why NYC, though?

    4. JP Morgan is reportedly going to lose $1.5 billion this year, due to subprime issues, we learned late last week.

    5. Sitting on the NYC Fed board is the director of JP Morgan.

    Either something stinks, or there is something out there, as yet unannounced…

  21. michael schumacher says:

    i’m in Florida’s camp…there is still too mmany unknowns (well some know and each day we get news saying “it’s all fine”) and then some other shoe drops.

    How is the BLS going to massage the stat’s going forward now that all these mortgage jobs and soon to follow brokerage layoffs will be hitting the unemployment ranks?

    Fed has quite a dance to do should it try to continue to show employment is not being affected….how can it not??

    Ciao
    MS

  22. Pool Shark says:

    Florida & MS:

    fwiw, Bill Poole didn’t vote for the discount rate cut; though his alternate, Richard Fisher did.

    http://www.bloomberg.com/apps/news?pid=20601109&sid=a20JTpGk5JgM&refer=home

    Plausible deniability?

  23. Sheeple Investment Co. says:

    Florida….

    How ’bout San Fran because of Countrywide’s rumors of cashless-ness, and he New York Fed because Geithner is about the only Fed guy who has spoken to the fact that he finds all these derivatives very dangerous. I think it had to be something more immediate and urgent than “the real estate market in Cali.”

  24. Florida says:

    Yep, Sheeple

    Countrywide is probably what I was driving at more specifically. Thanks for helping to clarify. That’s gotta be big on the SF Fed’s radar.

  25. Bob A says:

    and oh… golly gosh. Isn’t it just the hugest coincidence that while the Fed meeting reportedly didn’t happen until Thursday night, trading desks on Wall Street seemed to know what they were going to do about 1:00PM on Thursday.

  26. michael schumacher says:

    ah that would be 1:08pm there Bob….

    but what’s a few minutes or few billion-LOL

    Ciao
    MS

  27. michael schumacher says:

    as far as the R.E. market here (and like everything west of the mississippi) we do not exist until it comes to the realization of those who dole out the annual bonus’ to the very people who were complicit in the causes of the current “issues”…..

    Not that it’s any earth rattling news but WauMu stopped any Option ARM offerings as of last friday.

    So want to short CFC but what wonderful bailout style news awaits it?

    Ciao
    MS

  28. Sheeple Investment Co. says:

    Bob A…ha, you cracked me up.

    How ’bout the irony of Poole keeping his dinner plans (not taking the phone call) so he wouldn’t tip anyone off! What a bunch of jokers. Half the rally had already happened by then.

    Wall Street is a great “forward looking” discounting mechanism because it gets all the info ahead of time!

  29. SPECTRE of Deflation says:

    Ain’t containment grand:

    Thornburg sells assets to cut risk

    NEW YORK (Reuters) – Mortgage lender Thornburg Mortgage Inc (TMA.N) said on Monday it sold more than 35 percent of its assets and reduced its borrowings to cut its risk, and cautioned that the investors that buy its home loans are still jittery.

    Thornburg’s shares fell as much as 11.9 percent as the company said it has written down the value of more home loans on its books.

    Mortgage lenders have increasingly had trouble financing their operations as investors panic about the home loan market, where home prices are declining and defaults are rising.

    “Investors’ confidence in the mortgage financing space is not doing well,” said Larry Goldstone, chief operating officer, in an interview with CNBC television on Monday.

    Thornburg said it sold off $20.5 billion of assets and reduced short-term borrowings by an equivalent amount.

    Countrywide Financial Corp., (CFC.N) the largest U.S. mortgage lender, said last week it drew down an $11.5 billion bank credit line after losing some access to short-term borrowings.

    “Companies with short-term funding still have challenges,” said Bose George, analyst at Keefe, Bruyette & Woods in New York.

    Thornburg said the asset sales will stabilize the company’s ability to meet its financing obligations and continue its mortgage lending operations.

    But the risk reduction will also result in a realized capital loss of about $930 million, Thornburg said.

    Thornburg also said its book value is about $12.40 per share as of August 17, compared with a book value of about $14.28 per share as of August 13, signaling the value of its assets declined last week.

    The company sold most of its lowest-yielding assets, including unprofitable loans, and expects to remain profitable on an operating basis in the third quarter.

    Thornburg’s shares fell $1.44 in morning trading, or 9.1 percent, to $13.60, after falling as low as $13.25. The company’s shares traded as low as $7.50 last week. Thornburg’s shares closed 2006 at $25.13.

  30. michael schumacher says:

    so much for that rate cut….the financial stocks are starting to sell off.

    What next? just locate a printing press into each brokerage? Would be quicker and be less cumbersome.

    Ciao
    MS

  31. Norman says:

    The immediate problem is that these collaterized loan packages probably have huge bid/ask spreads and that is illiquidity. Until a real market is made there will be all sorts of trouble.

    After that comes the issue that whomever lent on this debt has got to take the loss. The main fallout comes to those banks. Then comes the various financial instiutions that actually have them as investments. Finally, losses need to be taken by just plain investors. All of this is tough but manageable.

    Finally, comes the real economic problem, all of the home owners who leveraged themselves to the hilt in the first place and now will be at a loss to make much higher mortgage payments from negative amortization now showing up and having their interest rates maybe almost double.

    So, either the FED lowers rates to such an extent that allows rollovers, the government subsidizes these mortgages or makes the lenders do it (if this then everyone else’s mortgage rate gets increased) or these homes go on the market probably crushing prices.

    The overleveraged homeowner is the real problem.

  32. techy2468 says:

    MS…now dont be so harsh.

    we have to agree that the bailout is not so bad as we all think it is, otherwise there would be no problem in the financials.

    reason: we know that the bad papers are the culprit, around 1 trillion of them due to leveraging i think around 500-600 billions is just hot air (if home prices dont keep appreciating)..

    so if the FED was to open the discount window and take all those papers….give them loan for 2-3 years….we can easily have another bull market for the next 2-3 years…maybe DOW will go to 20000.

    by then FED can make sure that dollar drops to 50% its current value….and inflation goes through the roof….voila….all our debt are reduced to 25% of their size and our wages have grown by 50%….we can start towards the next economic boom again…

    btw i forgot the mention….that china will get hit badly…..because usa consumption has fallen because things are more expensive now….and of course same thing with all of emerging economies….they lost all their profits (since their governments are holding trillions in USD which got discounted due to falling dollar).

    man i wish the current administration can pull this off….nothing like some one else paying the party bills.

  33. Eclectic says:

    Barringo,

    http://finance.yahoo.com/q/bc?s=%5EIRX&t=5d&l=on&z=m&q=l&c=

    I have a new card for our death row inmate to consider:

    As you know, the Governor has now offered him a deal on the chance of his money market mutual fund breaking the buck (they break – he fries)… as a substitute (once changed, no can un-do!) against the sentence he’s been living with that if the 10-Y-T closes at or above 5.25000 he gets fried the same day.

    Let’s add a 3rd card for his hand. What say?

    Here’s the new deal from the Governor:

    90-day T-Bill closes at or under 2.5000, he fries… never – full pardon!

    Which of the 3 cards would you play, Barringo?… There’s 3 good cards to pick from… Which one?… C’mon… You’re our fearless leader… What say?

  34. Eclectic says:

    **Da-e-uuummmm!!**

    That 3rd card went to shit faster than I could type the new offer from the Governor!

    You can’t even blink in the middle of this liquidity. I just went to pee and it was 2.40!!

  35. Animal House says:

    Not to worry, the rate cuts ,re-fi’s, etc will magically make all of the negative amortization DISAPPEAR!

    As the old saying goes…The best cure for a hangover is always…MORE BOOZE!

  36. Eclectic says:

    Barringo,

    Looks like the 3rd card’s still in play for the choice… remember, it’s the close on any day, not the intra-day price.

    I almost re-wrote the Governor’s offer lower, but I was too afraid the 90-day would take it out before the ink got dry.

  37. Lord says:

    If by moral hazard you think it would bailout the mortgage borrowers and lenders, a rate cut won’t have much effect. If you mean it would bailout the stock market, then would have a significant effect, but there isn’t much moral hazard in the stock market these days.

  38. SPECTRE of Deflation says:

    Ole’ Bill Fleckenstein tearing the Central Banks a new one.

    Central banks are stealing from the average citizen

    What happens when fiscal irresponsibility gets rewarded with bailouts? You get more fiscal irresponsibility. Let’s stop rescuing greedy financiers and investors.

    MSN Money Contrarian Chronicles

  39. techy2468 says:

    looking at the stock market recovery….i am wondering if we are going to get a 25 bps rate cut tomorrow morning :)

  40. michael schumacher says:

    watch GS and BSC..if they go ballistic then you know what’s coming……

    Ciao
    MS

  41. ari5000 says:

    $IRX plummeted.

    Rate cut is coming very very soon.

  42. SPECTRE of Deflation says:

    $IRX plummeted.

    Rate cut is coming very very soon.

    Posted by: ari5000 | Aug 20, 2007 6:04:37 PM

    There is way more coming soon than a little ole’ rate cut. Mark to market from mark to Goldilocks will be something to be remembered.

  43. wunsacon says:

    techy2468, I think that’s why the rest of the world decided they should steer away from treasuries. Will they lose part of their investment by seeing the USD tank? Sure. But, they might decide it’s better not to send good money after bad.

    Of course, they’ll keep things as orderly as possible. It might be better for them and for most of us that they do.

  44. Eclectic says:

    Let’s see now… let me summarize:

    The poor guy’s got 3 choices of strategies to save his skin. Hmmmm… “Which one do I employ?” he must ask himself, “Which one’ll keep me from gettin’ fried?”

    (1)- Okay, well… if I s-t-i-c-k, I get to keep sweatin’ the 10-Y-T at or above 5.25000 and I’ve already been to the mountain top (within .002 – that’s like 2 pennies in 10 buskaroonies!, and that’s too damn close for comfort) and I don’t reckon I want to see over the top!

    So, I suppose I could take the Gov up on his second offer:

    (2) – But, if I take that one and somebody shits the bed in the mm mutual fund industry, and my mm mutual fund (“Funny Fund of Choice, Inc.”) trips the light fantastic and puts out an N.A.V. that just adds up a hair shy of 1.00, then I’m fucked!… or…

    (3) – I can take the Gov’s last card, dealt down and dirty, and that one puts me in the hot seat if the 90-day T spins inexorable to 2.5000 or under. Who knows, maybe today was the bottom of that number!… It might be the one!

    Whew!… What choices! Okay, so any of these 3 may keep me alive, and any of these 3 might get me fried. Too, I might play one card and get fried, when, with either of the other two, I’d have walked free and clear… or, I might play one card and walk, when both the other cards would’ve gotten me fried.

    What to do?

  45. Pat Gorup says:

    Is hyperinflation coming or am I way off base here?

    I understand it as an unchecked increase in the money supply (FED injections and/or rate cuts) or drastic debasement of coinage (weaker U.S. dollar) which is often associated with wars (Afghanistan and Iraq), economic depressions (credit/real estate bubbles) and political or social upheavals (last approval rating figures for Republicans or Democrats was < 30%).

    Are gold coins/bullion, I Savings Bonds and foreign currencies hyperinflation proof? What foreign currency (certainly not any in an emerging market)? Emerging markets appear to be too leveraged to the U.S. Are there any other type of investments?

    Anyone read the book written by Peter Schiff called “Crash Proof”?

    Comments on any of this? Thanks!

  46. SPECTRE of Deflation says:

    This article excerpt makes clear that this really is a solvency question, and not a question of liquidity. The FED can do whatever it likes, but this is where the rubber meets the road.

    Aug. 20 (Bloomberg) — Yields on U.S. Treasury bills fell the most in two decades on demand for the safest securities amid concern over a widening credit crunch.

    Three-month yields dropped the most since the stock market crash of 1987 and more than in the wake of the Sept. 11, 2001, terror attacks in the U.S, as funds shunned assets that may be linked to a weakening mortgage market.

    “The market is totally, absolutely, completely in fear mode,” said John Jansen, who sells Treasuries at CastleOak Securities LP in New York. “People are afraid that lots and lots of mortgage paper and mortgage paper derivatives of all sorts is completely opaque and they can’t price it.”

  47. SPECTRE of Deflation says:

    Is hyperinflation coming or am I way off base here?

    I understand it as an unchecked increase in the money supply (FED injections and/or rate cuts) or drastic debasement of coinage (weaker U.S. dollar) which is often associated with wars (Afghanistan and Iraq), economic depressions (credit/real estate bubbles) and political or social upheavals (last approval rating figures for Republicans or Democrats was < 30%).

    Are gold coins/bullion, I Savings Bonds and foreign currencies hyperinflation proof? What foreign currency (certainly not any in an emerging market)? Emerging markets appear to be too leveraged to the U.S. Are there any other type of investments?

    Anyone read the book written by Peter Schiff called “Crash Proof”?

    Comments on any of this? Thanks!

    Posted by: Pat Gorup | Aug 20, 2007 7:14:04 PM

    Whew that is the question. What if we have had our hyperinflation, but this time is was in all asset classes? Wild speculation, lots of juice for the game [liquidity], alchemy of the bond universe and on and on.

    Further we had a period of disinflation while we experienced this hidden hyperinflation. The disinflation was in all things consumable or things we wanted.

    Once the asset classes return to the mean, which they must, all that is left is the debt. This is where we are today.

    If they monetize the debt we get Zimbabwe style inflation. Otherwise it’s to be deflation where cash will be king, and debt of all types will be abhorred. IMHO.

    Neither choice is very appetizing.

  48. Pat Gorup says:

    Spectre of Deflation:

    Cash as king is allright with me!! And it would flush alot of the excesses out of the levered U.S. citizen the Federal Government and Corporate America.
    There is no such thing as a “free lunch” and somewhere along the way a lot of our fellow citizens began believing there was.

    Any hyperinflation investment tips?

  49. ECONOMISTA NON GRATA says:

    No press release on this yet, however, a friend in the business, advises me that all financing for condos in Dade, Broward, Palm Beach and St. Lucy counties has been cut off completely at any price. All the players have pulled out of the market and unwilling to make loans on condos.

    I don’t think that cuts in the FF rate will help this sittuation….

    Econolicious

  50. BobbyP says:

    Don’t forget the coming pension blow-ups!

    http://www.bloomberg.com/news/marketsmag/pension.html

  51. Pat Gorup says:

    Bobby P:

    I guess that will end the debate on the privalization of Social Security. Can’t imagine how many on Wall Street were licking their lips over that possibility.

  52. SPECTRE of Deflation says:

    No press release on this yet, however, a friend in the business, advises me that all financing for condos in Dade, Broward, Palm Beach and St. Lucy counties has been cut off completely at any price. All the players have pulled out of the market and unwilling to make loans on condos.

    I don’t think that cuts in the FF rate will help this sittuation….

    Econolicious

    Posted by: ECONOMISTA NON GRATA | Aug 20, 2007 8:58:18 PM

    That would be huge news, and I agree completely with your thought regarding a rate cut. The garbage has still got to be marked to market from mark to Goldilocks.
    This is turning into a solvency issue.

  53. Winston Munn says:

    I can’t help but wonder what has become of the credit default swaps that were to cushion the blows against just such an adverse financial event?

    Could someone like GS have been trapped on the wrong side of a derivative nightmare?

  54. Juan says:

    why is the effective interbank rate, running below FF target rate for what, week, week-and-a-half, moreless ignored,,,who gains from the wider spread? Other hand, the penalty rate remains such.

  55. Barry,

    Was it Greenspan or Bernanke who suggested the was prepared to use “unconventional methods” in the Fed’s efforts to fight DEFLATION back in 2002?

    My memory might be a little hazy, but I’m pretty sure it was Burn The Bears Bernanke that made the suggestion.

    So who is cleaning up whose mess?

    BTW, I have obtained a list of Sentinel’s Largest Creditors, er, bagholders.

  56. SPECTRE of Deflation says:

    Half of $1.1 TRILLION DOLLARS Due In 90 Days. An excerpt:

    The Problem Spreads And The Fed Can’t Help
    From Bloomberg:

    The $1.1 trillion market for commercial paper used to buy assets from mortgages to car loans has seized up just as more than half of that amount comes due in the next 90 days, according to the Federal Reserve. Unless they find new buyers, hundreds of hedge funds and home-loan companies will be forced to sell $75 billion of debt backed by mortgages, according to Zurich-based UBS AG, Europe’s largest bank.

    Those sales would drive down prices in a market where investors have already lost $44 billion, based on Merrill Lynch & Co.’s broadest index of floating-rate securities backed by home-equity loans. That may hurt the 38.4 million individual and institutional investors in money market funds, the biggest owners of commercial paper.

    “We’re dumping all this collateral into the market and it becomes a death spiral for the assets,” said Brian McManus, head of collateralized debt obligation research at Charlotte, North Carolina-based Wachovia Corp., the fourth-biggest U.S. bank by assets. CDOs contain pools of mortgage securities that have been repackaged and sliced into pieces.

  57. Anonymous says:

    Chasing Fed Headlines, Missing the Real Story

    Everyone is familiar with the Fed’s cutting of the discount rate last Friday morning. After reading numerous articles about the rate cut and its implications (which all seem to have an odd celebratory tone), I keep searching for one that really lets …

  58. SPECTRE of Deflation says:

    From Bloomberg:

    “Lacker told risk managers yesterday that the Fed’s district banks would even accept boat loans as collateral. It’s up to the banks to establish a value for the assets as they make the loan, he said.”

    They are taking frigging boat loans and junk paper still marked to Goldilocks. They will monetize the debt with this type of lending in the end.