The strategy of the Fed is a lot like the strategy of the guy who disposes of bodies in Pulp Fiction, although you have to imagine that guy trying to cover up for the St. Valentine’s day massacre. How does the Fed take out the dead bodies in full public view while pretending that nothing is happening? Very carefully. Some third party action here, a casual announcement that it is opening up half of its resources, 400 billion dollars, as a sort of charity fund for predatory meta-lenders there. And it is treating the dollar like skeet, of course –let’s shoot that value down and treat the American consumer to some real, good old fashioned inflation – ein bisschen Weimarmusik, if you will. Later on, maybe we will all sit down and try to figure out why the economy was put in the hands of Milton Friedman's mutant ejaculate. Fun while it lasted, boys!
Here’s the grit in the grift: if you keep saying shit that turns out not to be true and it turns out to be not true the very next day, it can get embarrassing. If you say we have no liquidity problem one day and the next you say, oh, did I say liquidity? I meant to say liquids – we have plenty of liquids here in the Boardroom. Single malts galore! Then people begin to suspect you not only don’t know your shit, you never knew your shit. Now, you can tell the yahoos and suckers out there almost anything – the last eight years have shown that. But the slightly more elevated yahoos and suckers who are aspiring to the yacht class get all panicy when they realize they have serious money in the Liars Club. Hence, they rush in to get it out. They start to shake the very bones of the system, moan, groan, and shit in public. It is very hard, in the midst of this freak show, to discretely dispose of the victims.
All of which leads me to this quote from Chernow’s biography of J.P. Morgan:
The 1907 panic would be the last time that bankers loomed so much larger than regulators in a crisis…
“The panic was blamed on many factors – tight money, Roosevelt’s Gridiron Club speech attacking the “malefactors of great wealth,” and excessive speculation in copper mining and railroad stocsk. The immediate weakness arose from the recklessness of the trust companies. In the early 1900s, national and most state-chartered banks couldn’t take trust accounts (wills, estates, and so on) but directed customers to trusts. Traditionally, these had been synonymous with safe investment. By 1907, however, they had exploited enough legal loopholes to become highly speculative. To draw money for risky ventures, they paid exorbitant interest rates, and trust executives operated like stock market plungers. They loaned out so much against stocks and bonds that by October 1907 as much as half the bank loans in New York were backed by securities as collateral – an extremely shaky base for the system.”
Pikers! in our new supersystem, places like Carlyle Capital thought nothing about being leverage 32 to 1 - keeping money as a sort of white elephant being so fucking passé.
Well, we will see what tricks in the body removal trade the Fed will come up with next week. This is the new, ”please don’t notice you are in a recession and your 401(k)s are crap” recession. There’s even a Faulknerian note – Birmingham, Alabama is rapidly becoming a sink hole as the stock market plunging done by the good uber-Christian city managers there have lost more money than anybody knew one midsized city could lose.
So this song goes out to my Birmingham Alabama buds who obviously were doing this whilst planning Jefferson County bond issues!
8 comments:
What do you make of this latest effort to offload Bear Stearns onto JPMorgan? What the hell is going on in the heads of these people? Is JPM just cutting a deal with the Fed to limit its liabilities because it thinks that by postponing the shock it might recoup more of its losses this way?
Meh.
jcd - in truth, this is another marriage of convenience by the Fed, like countrywide and Citi, that exists solely so that the wedding announcement can go out. Why? Because the fed, since last august, has been pursuing a bizarre day trader's idea of economic policy. They are petrified of drops in the stock market. But they shouldn't lock into that. If there's a couple of 500 or 100 point drops, big deal - the market will drift back up. In reality, corporations right now have more cash - just cash - on hand that at any time since the sixties. But if the Fed is determined to trash the dollar, this is not going to be good for those corporations. And trashing the dollar is what the Fed is doing, keeping the Market from crashing.
The idea that we are near a great depression is put out by people who have little historical imagination of how people lived in the great depression. We are infinitely richer. That said, who knows where the Fed's trader policy is going to lead us.
You know, roger...I disagree with you hear. How are we really richer-in a real sense? Our families are much more diffuse and broken. Few of us have any ties to farming or any real means of self sufficiency=our jobs are gone, we are gone. We are trillions in debt, versus the net creditor status in 1929. Radicalism has been largely discredited, there is no left to provide an alternative view of things. We have 300 million people to feed and employin a world with dwindling oil. I think we are culturally far weaker now than we were in 1929. But then, I am a doom and gloomer. :)
This is a fascinating series (three articles) Take it for what it's worth: http://www.fromthewilderness.com/free/ww3/060105_soviet_lessons.shtml
I meant "Disagree with you here," of course. My typing sucks
and, the link is actually:
http://www.fromthewilderness.com/free/ww3/060105_soviet_lessons.shtml
Roger, my comprehension of the more esoteric aspects of these economic decisions (such as what exactly these people hope to gain by doing what there doing!) is pretty limited. But it strikes me as both simply a transfer of money to a bank that screwed the pooch (why not just nationalize the thing, until the house gets in order?) and then this sale. It's odd to me. Maybe the price on the stock was a steal of JPM. I dunno. I want to see some bank managers sink to my level of income though -- it's the vindictive peasant in me.
Well, according to Crooked Timber, quoting the Guardian, a billion has been put aside, charitably enough, to cover the outgoing compensations of the old Bear Stearns management team. So luckily for you, that peasant part of yourself won't gain any satisfaction here! Put him down enough and we can all rest easier, knowing that the masters are takin' care of everything. I can't help thinking that this article about yachts in the NYT business section Sunday was... well, so poetically appropriate.
I have long and steadfastly advocated changing the imagery on our currency to reflect the new system. Taking the most highly paid man in corporate America, the CEO of Enron, I've advocated taking a beautiful and artistic rendering of his turds - in the making of which, as an old guy sitting on a toilet, he earns about a thousand or so dollars, given the rate of his pay - and putting them on our currency. I think it would be an inspiration to the youth.
Yea, all the bases have probably been covered with treasury money, if Bear Stearns goes any sourer. But in any case JPM's stock has surged in the wake of the purchase. Imagine that. I suppose hoping for an angry, transparent, hearing and indictment and then jailing of all these grand turd burglers is only wishful thinking.
It's just so blatant. Although, being the youngin that I am I probably would have been spitting in disbelief from whenever I became politically conscious. Oh well.
Post a Comment