What if I ride? What if you walk? Excellent article in Fortune on Bernanke. Being a wanker
I read this wonderful spleen-venting on my phone on the ride back out (marking mid-terms, giving mid-terms, moving apartments in New York – good thing I finished the revisions for my thesis last week).
The players in the biggest trouble, of course, were the ones who’d taken the biggest fliers in junk mortgages, ultra-risky leveraged buyouts, and other financial esoterica that proved to be malignant.
The stock market, which had been begging for a bailout and hasn’t ever seen an interest rate cut that it didn’t like, responded to the Fed’s half-pointer by running prices up. Ben Bernanke, the Street decided, is just what the doctor ordered.
Yes, it is about rate cuts, moral hazard, and coming to the aid of all the wrong people. I don’t want to say the mainstream people are late to this game, of course – I mean they’re only just starting to work out that maybe inflation isn’t being measured properly, maybe housing is in trouble and maybe we ought to pay some goddamn attention (I have a bad attitude about the mainstream of business/economics reporting, it is true. But only because they’re shit).
…as a result of the cut, those of us who keep score in dollars and didn’t need to be bailed out are less wealthy than we were in terms of anything other than our home currency.
Why? Because the rate cut contributed heavily to the dollar’s recent sharp drop in the currency markets – parity with the Canadian dollar, for God’s sake! – and to the price spike in hard assets like gold, silver, copper, and oil. So our wealth, relative to these other things, has diminished.
And wait, there’s more. Even though the Fed has cut short-term rates, long-term rates, which it doesn’t control, have risen in reaction to the cut. So whatever economic benefits may flow from lower shortterm rates will be partly offset by the rise in long rates, which are at least as important to the economy as short rates.
Finally, consider this. Even though Bernanke’s cut may mean that some junk mortgages will reset at lower rates, the cost of large, high-quality fixed-rate mortgages, which are tied to long rates, will be higher than they’d otherwise be. (Yeah, penalize the people who are prudent – way to go!)
The article does make some good suggestions – nothing regular blog readers (of blogs better than this one, of course) will recognise most of it as (a) old news, and (b) common sense. It is just galling (and has always been, at least to me) that authority somehow remains clinging to the fat, lazy sides of these outlets, who sit idly by and lead most of the cheers in the so-called ‘good times’ anyway. Is it that much to ask that news media have a memory?
I’m sure we all can’t wait for the rash of panic stories that will surely follow all the macroeconomic data covering the last month – without any regard to all their optimism a couple of months earlier when data that didn’t cover the last month came out. Someone ought to find out whether micro-economists get fewer ulcers than macro-economists.