High-Power Spin

Mark Thoma does a fairly decent job of discussing four major views of what the Fed should do to mitigate the Mortgage-generated liquidity crisis. Most Readers know my position, but for who don’t; I oppose the Fed taking any further action at this time. The new Financing policies are the stuff of Robber Barons, who spied the excess funds held by the Public, and dreamed up new ways to grab the Cash, add on their fees, and spread the Risk forward. They need two things to maintain their positions: the confidence of Investment Depositors, and viable Entities to lend the Cash generated. Good Times continued for too long, and the Robber Barons found themselves with substantial Cash potential uninvested, from which they could not draw fees. They dumped their Standards, and started Lending to Anyone who wanted the Cash. Then the Crisis occurred, which was basically the loss of Confidence of the Investment Depositors. The Market shakes, and the Robber Barons want the Fed to underwrite the bad Paper, so they can regain Depositor confidence while escaping any culpability for registered Losses from the bad loans. It reminds one of Michael Milken and his Junk, redressed in a pretty package to attract the Greedy.

What are the chances that the Mortgage Crisis will incite a Recession? Here is vitally important to define Recession–with Two Quarters of Declining Production. Can the American economy run in negative territory for two continuous Quarters? It might drop One Quarter, to expire Overreach by the Bill Gates Wannabees. Getting that second contiguous Quarter really seems improbable, considering present Consumer Demand which would have to take a Nose Dive over 20% for the Two Quarters; given the level of New Household construction. The biggest fear of Business should be an Immigrant law which expels all those Immigrants with their brand-new Credit Cards. A forestalled Recession, though, does not a Market make!

The worst aspect of the Mortgage Crisis is a major drop in Hedge Fund Subscriptions, as Homeowners redirect their funds to payment of excessive Mortgages; understand Many of those Mortgages were entailed simply to attain Funds for Hedge Fund Subscriptions. The Concept needed a little Work from the Start; now with Mortgage rates going up, and Hedge Fund Returns going down, there will be another transfer of Funds (Hedge Fund Managers might remember the biblical story about the Good Cows, and Bad Cows). The Fed may retain sanity, and let the Securities sector take the Fall for their malfeasance. The balanced Portfolio, though, will survive with retention of their Market Share–regardless of a very unstable Dollar count. Now if We only can talk Corporations into buying back all that ridiculous excess Stock issuance. lgl