Thursday, January 24, 2008

Real Reasons Brinker Should Bash Bernanke

George Johnson posted these thought-provoking comments on Kirk's Facebook Brinker Forum:
"Per Honey's summary Brinker is again bashing Bernanke. (Thanks Honey for the summary). I think Brinker is way off base. IMO if you want to bash Bernanke, you should bash him for seeming to develop a policy that says each time the economy weakens, the Fed will slash rates some more. He will worry about inflation later. He is playing into the market's desires. The market may keep demanding more rate cuts.
We need a Fed that is strong, cool, calm, principled, largely ignoring politicians, largely ignoring the markets, focused on price stability for the long run, focused on Fed policies that support a strong economy for the long run, etc. The current Fed policies are undermining the dollar and maybe setting the stage for a strong resurgence in inflation. We may avoid or have a mild recession now but could have a very bad one in the future.
We have screwed up big time with sub prime loans, CMOs, bad loan underwriting, etc. We need this junk to work its way out of the system which may take awhile. We need a Fed and Government that is studying what happened and willing to be more proactive to carefully prevent similar financial crisises in the future. We especially need transparency for financial and risk mechanisims, all of them; derivatives, hedge funds, private equity transactions, CMOs, etc.
Something appears to be terribly, terribly wrong when a Hedge Fund Manager can make $1 Billion dollars in one year. What did he do to justify this, develop a replacement for Microsoft Windows?, make a major scientific breakthrough to solve the energy and pollution problems?, develop a cure for a cancer? As far as I know all a Hedge Fund Manager did was take risk with other peoples money. Difficult to be successful but not in the class of difficulty like curing a cancer. In fact the more risk you take the more money you might make especially if you get lucky.
How about a CEO where the profits actually go down or the business stumbles and the CEO gets $300 Million dollars in pay. This CEO pay is 500 times more than the aveage workers pay in the company and 25 years ago it was only 50 times more. Something appears to be terribly, terribly wrong."


princepro110 said...

Your comments mirror those in todays NY Times. The market expects a minimum half a point on the 30th and if they don't get it we may have panic again.

The emergency meeting between the banks and the major bond insurers in NYC yesterday brought some 15 billion dollar bailout plan that was the major force in driving the market yesterday. The problem is the junk total these insurers have is well over a trillion!

Where is Bob?

Jody said...

Yes, the Fed is letting the tail wag the dog now. They are adjusting rates to try and calm the stock market, rather than thinking about long-term economic health.

Taking a look at U.S. investments from a European or Asian perspective: why would anyone invest in either U.S. stocks or U.S. treasuries right now? Our stocks are overvalued and pay puny dividends compared to those overseas, and treasury yields are nosediving as the Fed keeps cutting rates.

muckdog said...

What does Bernanke have to do with hedge fund managers and CEOs?