Comments on: The Fed…Ready, Fire, Aim

By: Shoebox

Shoebox — Fri, 21 Mar 2008 15:49:27 +0000

Agreed on B/S but I think it goes to prove my point. The fed’s action was “manipulated” to impact B/S because they happened to be “it” at the moment. It was also why B/S got into the jam…they had to ability to get liquidity hence the change in the Fed that they are now lending to damn near anyone that can stumble to the window!

On the subprime…this is exactly the issue. The mark to market has caused the financials to be unble to determine what their balance sheets are at any given moment. The result is that banks are writing off their balance sheets unreasonably and at the same time restricting their abilty to loan any more money. I’ve read several articles suggesting that the Fed ought to work to set aside the mark to market requirement for a year…I haven’t figured the down side on this yet. It sounds like it may be a good short term step.

By: dad29

dad29 — Fri, 21 Mar 2008 15:12:33 +0000

One more thing: B/S doesn’t really fall under the Fed’s ‘regulatory authority;’ they are not a commercial Bank.

So the Fed gave the shoe-horn money to Morgan/Chase–the commercial Bank.

You’re right on the macro, however–we haven’t come anywhere close to puzzling out the actual value of subprime investment vehicles. They are certainly worth more than 50-80% of face value, and less than 100%.

It would be nice if a firm number actually emerged.

By: Shoebox

Shoebox — Thu, 20 Mar 2008 22:26:02 +0000

Dad29…
Can’t disagree with you on any of the issues to date. I’d also proffer that the “cause” for this sat right square at the Fed through a combination of abnormally low interest rates and a regulatory side that had become way too hands off. A part of me looks at this like Iraq. Honest people can argue about whether it was the right decision to go. however, we are now there so, what do you want to do about it? Ignoring the problem doesn’t make it go away. Also, Jury is still out on whether this is more than a temporary feel good. All I’d offer as a defense is that each day they buy brings us another day to get through some of the “ciphering” that is going on trying to deleverage. If this thing unwinds overnight it won’t be just the shareholders of the financial companies that will get hurt, it will shoot pain throughout the economy.

By: dad29

dad29 — Thu, 20 Mar 2008 21:31:05 +0000

Umnnnhhhhh…

Fed has a problem, yes. The problem: how much monetization is TOO much monetization?

Friedman would probably approve of the B/S action; but Fed already has a lot of USDs floating around which has depreciated the USD significantly in the last 120 days or so.

At some point, somebody’s going to have to take a haircut. B/S shareholders did (at least on paper), but others will have to as well.

“Confidence,” yes. Whoring the USD–that’s another question.

By the way, the crap-mortgage market provided a lot of B/S earnings–and I mean a LOT. So the ‘haircut’ they took was offset by 5 years or so of ….profiteering on Milorganite.