Will Ben Bernanke's speech tomorrow at the Fed's syposium in Jackson Hole, Wyoming, be as important as the pundits expect? Maybe not.
There are many, many worrying signs. The commercial paper market is a mess. Jobless claims rose higher than expected. The housing market remains horrible.
H&R Block (NYSE: HRB) Chief Executive Mark Ernst said today the "mortgage origination market is in the midst of the most severe dislocation it has seen in years, maybe the most severe since the 1930s." Housing prices had their smallest gain in 10 years, according to the Office of Federal Housing Enterprise Oversight.
But this Fed chairman has a dramatically different view of his job than did his predecessor, Alan Greenspan, who regularly used interest rate cuts during financial crises, as The Wall Street Journal (subscription required) points out. Plus, Bernanke seems to hold the view that the job of the Federal Reserve ISN'T to rescue people who took stupid risks, such as the ones that lead to the subprime mortgage crisis.
Bernanke also believes that Congress and the private sector need to do more to develop "a broader range of mortgage products which are appropriate for low- and moderate-income borrowers, including those seeking to refinance," according to a letter released yesterday by Sen. Charles Schumer. Moreover, he said that the caps on the value of mortgages that Fannie Mae and Freddie Mac can purchase "need not be lifted to allow them to accommodate new borrowers."
Wall Street, though, latched onto Bernanke's comments that the Fed would "act as needed" to help the economy, and rallied yesterday and today.
But Bernanke didn't say when that could happen, or what it would do. Maybe that means a rate cut. Maybe it doesn't.
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Reader Comments (Page 1 of 1)
8-30-2007 @ 1:42PM
Alastair said...
There is a fine line between the Federal Reserve bailing out investors who made stupid mistakes and saving the entire banking system from its mistakes. Dr. Bernanke will know what to do.
Better that the Fed be in charge than the childish sheep on the floor of the New York Stock Exchange trying to extort the Fed into lowering the Fed funds rate by manipulating stock prices. These Republican socialists who never think beyond the Hudson River or beyond the walls of the CBOE are the first to run to the US Government to be bailed out when the going gets a little hot under the collar. Let the hedge funds and the banks fail for being dumb and irresponsible.
If the poor and the elderly are pressuring for expanded Medicare or national health insurance, then Wall Street cries "No cradle to the grave security for anyone". What a pack of lying, self-centered hypocrits and thieves!!
Maybe we should close the NYSE for a couple of months, seize and nationalize all banks and lending institutions, and simply permit Dr. Bernanke and the 12 Fed governors to liquify the markets. That would send the most powerful of signals to all markets everywhere.
8-30-2007 @ 4:47PM
Steve-o said...
"Maybe we should close the NYSE for a couple of months, seize and nationalize all banks and lending institutions, and simply permit Dr. Bernanke and the 12 Fed governors to liquify the markets."
Maybe we should just appoint you Mussolini and see if you can make the trains run on time.
8-30-2007 @ 5:19PM
Bill George said...
Early this morning I had an epiphany.
After watching the securities markets gyrate intensely for the past several days It suddenly it occured to me that everytime Ben Bernanke clears his throat the Dow pops-up-or-down in excess of 200 points. When Maurice Greenberg, Eli Broad, or the Bank of America buy a "call" on a hedge fund or an institution which has been 'pounded' and needs an infusion of liquity the markets move significantly.
It seems there really is no liquidity crises. By their actions speculators have demonstrated that there is plenty of risk money available to provide liquidity - at the right price.
Maybe the obvious availability of all this speculative liquidity will cause the federal reserve to think more carefully about the impact and the long term desirability of lowering the discount rate.
8-30-2007 @ 6:02PM
Mort said...
There has been A LOT of excesses in the mortgage and credit markets during the last 4-5 years...so some pain to bring about a correction seems reasonable.
The Fed should NOT rush in to tinker with markets in an effort to save foolish people and Wall Street.
8-31-2007 @ 8:15AM
RichardUSN said...
Federal Reserve Chairman Alan Greenspan was wise
enough to understand his reponsibility not just to the
American economy and the American people but to the world as a whole. He did this in a brilliant and timely way with his pure genius unaffected by any
personal desire for recognition or ambition. It was pure service to his fellow man. Mr Bernanke has a self
serving approach in that he wants to tell everyone that "his job is not to rescue those people that took
stupid risks" but to teach them and the banks a lesson, all the while leaving rates for the banks to continue their windfall profits matching the oil moguls.
The low income American gets slaughtered again in all
this foreclosure debacle caused by the greedy banks, but the banks get saved and guess who pays for it in the long run?? Mr Bernanke, do your job and get these interest rates down, NOW.