Wednesday, November 28, 2007

Helicopter Ben is Lost

"If Fed Chairman Ben Bernanke's original estimate of subprime loan losses of $50-100 billion had been anywhere close to accurate, there would have been no problem. ... The Fed's chosen solution, dropping interest rates and pumping more money into the system, did not address the real problem and was thus useless, as it has since proved. It has only postponed the denouement for a few months and stored up further trouble with inflation. ... If Level 3 assets can be valued only by reference to an internal valuation model, ... how do we know they are really worth anything close to what the model says. ... Since every incentive led bank mathematicans to devise models that maximized the reported value of the bank's holdings, and since little or no market existed by which those values could be checked, it is likely that today those assets' book values are highly overstated", Martin Hutchinson, at, 26 November.

"And now Ben Bernanke, as is promised by 'targeting inflation' and heralded by the spooky sound of ravenous wolves howling in the distance and getting closer and closer, is going to bury us in price inflation and destroy us all, but that is the only thing he can do, as there is literally nothing he can do, for if there was, someone else in all of history would have thought of it, and tried it, when their stupid experiments with fiat currencies destroyed them, and believe me when I tell you that they tried everything, and they all failed. ... 'Stephen Cecchetti, professor of international economics at Brandeis University, and a former research director at the New York Fed', ... said, 'Nothing leads me to suggest that there's an inflationary pass-through from dollar depreciation.' Hahahahha!," The Mogambo Guru at, 27 November.

I agree. Helicopter Ben's raining money down on the banks did not address the problem: what are the bank's assets worth? The models will be revealed to be optimistic to say the least.

I read Cecchetti's piece at, 26 November, and thought it preposterous. It was so preposterous, I didn't think it worthy of comment.

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