Benny Cools His Jets…”Capital Insights with Jack Kern”
- Oct 11, 2008
With the current press coverage of the $700 billion taxpayer financed bailout firmly taking hold in the minds of most owners and developers, we’re now facing a very unique situation. Typically, in most economies, the Fed takes the lead. With the capacity to move markets, the Fed actually only has two primary responsibilites: set the short term rates most typically affecting interbank transactions and second and most importantly, manage expectations on Wall Street. One of the most disturbing aspects of our current monetary policy now unfolding in a market near you, is that Bernanke has essentially been made ineffective, losing his political capital and the power of the Fed to Henry Paulson, a well known, mostly thoughtful former Wall Streeter. This is the beginning of not only a very dangerous time in monetary policy, but also sets a precedent, not seen since the early days of everyone’s favorite moron president, Herbert Hoover.
The Fed has lost control of the money supply. The primary reason is that Benny’s predecessor, Alan "play it again" Greenspan, (clarinet player, different story for later) helped to create two bubbles, the tech cycle and the housing collapse. After flooding the market with liquidity, the U.S. became the world’s favorite playground for investors globally. The mulitfamily industry was, in fact the beneficiary of a lot of this capital. Now that Benny has lost power, prestige and influence, we’re looking at Paulson as the lead. Consider this for a moment, the Secretary of the Treasury, a political appointee is taking the lead, in an election year, on running the economy. This is not only frightening, but to be blunt, seems like something very close to socialism. My original contention was that any bailout had to be invested in the banks, not in the hands of the treasury cronies who were asleep at the switch and helped get us into this mess. Now we’re seeing the fruits of an uninformed Congress pushing for even more taxpayer funding (Nancy Pelosi asked for another $150 billion) and the next result will not be positive.
In almost every photograph of the triumverate of stupidity, between Paulson, Bush and Bernanke, you see Beranake standing behind someone or off to the side. Coincidence?
As this plays out, we need Benny to get back on the Fed bandwagon and demand that Paulson let go of monetary policy and give it firmly back to the Fed governors. Market liquidity and the credit markets are vastly too critical to our economy to accept anything less.