Wednesday, March 26, 2008

Who Cares What Helicopter Ben Says?

"When the history of the Panic of '08 is written, there will be BBS (before Bear Stearns [BS]) and ABS (after [BS]). ... No matter the merits or intellectual distinctions, it is nearly impossible for a politician to explain the following: Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson were willing to risk as much as $30 billion of taxpayer money--without congressional approval--so that J.P. Morgan Chase could buy [BS] cheap at an auction in which it was the sole bidder. But a taxpayer-backed rescue of homeowners whose mortgages are worth more than their homes is unwise and unwarranted. ..Well, it's getting harder to see the line that disntinguishes banks and other financial entities. ... So the government insures deposits, and the Fed stands ready to lend banks money through its discount window; in return for those perks, the government insists on supervising and regulating banks. Securities firms, such as [BS], are supposed to be different. ... So comes the inevitable conclusion: Securities firms should be regulated more like banks", my emphasis, David Wessel (DW) at the WSJ, 20 March 2008.

"Wall Street firms are stepping up to use the [Fed's] new direct-lending program, submitting their hard-to-trade securities for funds from the central bank. ... The Fed announced the program Sunday night, extending its lending beyond banks, which are under its direct supervision. ... The Fed didn't disclose the size of individual loans or the borrowers identities", WSJ, 21 March 2008.
DW, I don't come up with your inevitable conclusion at all. I think the Fed should renounce its "too big to fail" doctrine and let banks fail. See my 12 December 2007 post.

Steve Waldman at has made much of the details of the Fed's various bad paper purchases. I ignore the details, the only thing that matters is: the Fed will bail out the banks by buying whatever it has to and will worry about the details and the legalities later. If at all. "What me worry", says Helicopter Ben, our Alfred E. Neuman of central bankers. Why should he? Hank Paulson's got his back as "The Bloodless Coup Continues", which I last wrote of on 4 December 2007.

"Hard-to-trade" securities? At what price? It's a bird. It's a plane. No it's super psuedo regulator, Mark Olson (MO) of the PCAOB. I understand that the Fed has not disclosed the entities which are using it's facilities. Well MO, do you think that's important? Do you and Chris Cox think that using those facilities is at least as important as any other 8-K disclosable event? What do you think anyway? What does Walter Riccardi think? Mike Garcia, do you think an entity which fails to disclose its use of the Fed's new facility should be indicted for securities fraud? No, you're too busy with Eliot Spitzer.

No comments: