Wednesday, October 22, 2008

The Wise Men Cometh?

Back in early January, I wrote:

I think years from now Bernanke will be seen as a temporary cut-out, an Arthur Burns mini-me, a front man for expediency, someone to damn the monetary torpedoes and then get the hell out before some Very Serious People (who no doubt quietly shifted their own savings into euros and gold long ago) announce that no, that didn't go well, but we've found a Volcker-type to come in and clean things up.

A look at how that prediction is playing out here and here. We'll see if Volcker's role is formalized after the election. I continue to believe Bernanke must be replaced, though of course Volcker wouldn't be a candidate for that specific job.

As for the speculation about Jamie Dimon heading up Treasury, I think he'd be a less than stellar choice. More on that soon, hopefully.


Anonymous rapier said...

First I think that the financial elite understood that there were going to be problems but hubris brought forth by a 25 year record of gaining stupendous wealth and power convinced them that they could handle it.

To handle it however the focus shifted to the Treasury and their guy, Hank Paulson. Bernanke would become a yes man to Paulson and The Street. The Treasury was obviously going to be needed to provide the 'liquidty' this time it should have been figured, not just the Fed. And so it came to pass.

The problem being that they are failing. The now weekly emergency measures are fraught with unforeseen negative consequences which are ony deepening the crisis. All the Treasury borrowing is choking off liquidity to the rest of the credit market. The credit worthiness of the Treasury itself is now in question, or should be to any serious observer of the situation.

Then too since Hank's sky is falling presentation just three weeks ago when he demanded his $700b the DOW is off 2000 points. This is a humiliation of the first order. Not only to Ben and Hank but to the entire political class who pushed through the 'plan' after its first defeat.

Yesterdays latest plan the MMILF took the cake. A price quoted somewhere between $540b and $600b was going to be used to aid the money market funds. Now 36 hours later I have not seen one single story or comment asking where the money is coming from. It's impossible to imagine such a thing but we are living it. $540b to do something, nobody is really clear what, with money that nobody knows the source of.

Bernanke won't even be a footnote.

10/22/2008 9:13 PM  
Anonymous Anonymous said...

I said it waaaaayyyyyy before you. I called Bernake the ML Carr of the US Economy. Lots of towel waving and lots of losses. I can't wait to see who we get for a draft pick.

PS. I don't dare compare Paulson to Rick Pitino....

10/23/2008 1:41 AM  
Anonymous Anonymous said...

Obama: Volcker.

McCain: Luskin.

10/23/2008 3:27 PM  
Blogger Vijay said...

Unfortunately we're in a one-in-a-century type deflationary event, so neither Euros nor Gold are safe.

Gold may ultimately be a good bet if the dollar collapses under the weight of greater and greater printing, but in the meanwhile 10 year treasuries continue to rally.

10/23/2008 5:19 PM  
Anonymous rapier said...

At this moment there is still zero recognition among any of our elites of the role played by Greenspan's, and then Bernanke's Fed. While just today Greeny appeared before Waxman's committee and said mistakes were made by the financial industry in pricing risk (duh) there was no mention of the Feds role in letting the balance sheets of it's member banks, especially the largest gorge on crappy assets. No mention of the role that too low rates played in nuturing the bubbles by rewarding leveraged speculation and discouraging savings.

I don't think there is a single significant politician in America who thinks the Fed is primarily responsible for the collapse of the banking system. Go figure. They are still in awe of the high priests of finance. Bernanke and Greenspan among them.

The search for culprits to blame is still a new enterprise which is in the background till the election. Will Bernanke and Paulson be on the list. Not unless or until the DOW is below 7000, unemployment officially near 10% and the budget deficit at $2T a year. That will all come but for now Ben is safe.

10/23/2008 7:26 PM  
Anonymous Ed said...

I agree with Rapier. I'm also finally agreeing with the libertarians and gold bugs who say its time to abolish the Federal Reserve. This isn't because I think that central banks are horrible, they are pretty obviously an essential feature of the economy. Its because the current Fed has been so much implicated in causing this mess that it will lose all of its credibility once this thinks in. At this point we will have to get rid of the currrent system and start over.

10/23/2008 8:44 PM  
Anonymous Anonymous said...

Just another example of the conservative movements sneaky attempt to downsize government.

Fail miserably and then convince everyone that THAT function of the government must be either privatized or dismantled.

Shame on them all.

10/24/2008 12:31 AM  
Anonymous goldhorder said...

hahaha...oh man anon. What planet are you from?

10/24/2008 1:03 AM  
Blogger Humble Student of the Markets said...

Could we get Volcker at Treasury?? I know he's 81 but he would undoubtedly be an influential voice in an Obama Administration.

10/25/2008 2:59 AM  
Anonymous goldhorder said...

Volcker would be nice. Does anybody even remember when the banks used to offer an interest rate for savings that was higher than inflation? The big problem I see with America turning this thing around is what on earth would we do with all these investment and finance jobs? We have a huge number of people doing work with no substance to it. We have a huge portion of our economy tied up in creating financial pyramid schemes. Now that we can't prop them up any longer what are all those people going to do? They don't have any useful skills.

10/25/2008 12:47 PM  

Post a Comment

<< Home