-- Posted Tuesday, 18 December 2007 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Tuesday, December 18, 2007
“Phenomenally accurate forecasts”
Inflationists have always maintained that the Fed would do whatever it takes to prevent the economy from slipping into deflation. How seemingly fortuitous, then, that someone deserving of the nickname “Helicopter Ben” was at the helm of the Federal Reserve when it came time to push monetary expansion to its theoretical limit. Recall that the idea behind a helicopter rescue of the financial system was that money would be shoveled out of helicopters, showering $100 bills onto creditors and debtors who'd gotten into dire trouble. Well, that’s pretty much what the Fed has been doing these days, in concert with the central banks of Europe. And if you are a card-carrying banker, there is almost no limit to the amount of no-questions-asked cash the Fed and its friends have placed at your disposal.
It is reminiscent of the days, in the early 1990s, when the Resolution Trust Corp was charged with bailing out the S&Ls. Back then, just about anyone wearing a suit and tie could walk into an RTC office and come away with the deed to millions of dollars worth of someone else’s foreclosed property. ( I experienced this first-hand, having worked for a hedge fund operator who did it until a string of regulatory infractions caught up with him and ended his career in the securities business.) For a few fabulous months, the RTC was effectively giving away assets to anyone who merely looked respectable. Now the Fed is trying to repeat the tactic, providing practically unlimited borrowing power to banks while they are still able to affect the appearance of creditworthiness.
Criminally Oblivious
This charade may be fooling the fund managers who continue to prop up equity shares with Other People’s Money, but it hasn’t fooled the credit markets, where spreads reflect greatly heightened risk in virtually all areas of lending. One wonders how many bailouts will have to be effected before confidence returns to the global banking system? This is of course a rhetorical question, since investors’ fears have already reached critical mass and will not allow business-as-usual to resume until ALL of the excesses have been wrung out. That implies quite a bit of wringing, by the way, since the dollar value of the subprime mortgage mess alone is currently estimated at half a trillion dollars (and still climbing).
Meanwhile, although some credit markets have slightly “un-frozen,” this is true only in the sense that an icebreaker might be said to “un-freeze” Arctic seas. Let an impediment halt the ship’s forward progress, and pretty soon it will be so solidly encrusted that only a century of global warming could dislodge it. And that’s where the credit markets are headed, even if the OPM managers who tend stock portfolios have contrived not to notice. When they finally do, we’ll see a day on Wall Street that in mere hours will make up for ten years’ worth of their criminal obliviousness.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 18 December 2007 | Digg This Article | Source: GoldSeek.com
