Wikinvest Wire

Stock market to Bernanke: "Hinting is not enough"

Tuesday, October 07, 2008

While waiting in line at the bank earlier today to visit our safe deposit box, reading in the Wall Street Journal about how yesterday wasn't a "capitulation day" and that too many investors are still looking for a bottom rather than abandoning hope altogether, I couldn't help overhear some rather desperate sounding conversations between bank officials and customers about one thing or another, invariably having to do with money and/or credit, usually the lack thereof.

There seemed to be more desperation in the voice of the customers than the bankers, but it was a close call.

They almost seemed relieved when it was my turn in line and all I wanted to do was to take a quick trip into their vault and it struck me once again how odd it is that banks have those big vault doors that remain open during business hours, yet the daily operations of the bank have little to do with anything behind those big doors.

Anyway, more than one customer in line whined about the falling stock market and this was a couple hours before the close in New York, at which time the Dow had a couple hundred more points than it ended the day with.

It seems Fed Chief Ben Bernanke is failing to instill confidence in shareholders, what with the wheels falling off of the global financial system and all. He gave a speech earlier today that only seemed to make things worse.

Bernanke hints at possible interest rate cut is how the headline read at Marketwatch.

It seems the stock market needs much more than that.

You have to wonder what Alan Greenspan would say at a time like this - surely it would be something very cryptic and people could read into it what they wanted to read into it and we'd all be better off as a result.

Remember when Bernanke was appointed a few years ago and Dick Cheney said something like, "You know, he's right here in Washington. You can call Greenspan anytime you want to for advice".

Whatever happened to Dick Cheney?

Wouldn't it be nice to ask the same question about Alan Greenspan?

At Bloomberg, the headline reads Bernanke Signals Fed May Cut Rates as Crisis Deepens and they have a video up from the Fed Chairman's speech earlier in the day.

IMAGEClick to play in a new window

It sounds like he's giving a eulogy.
The combination of incoming data and recent financial developments suggest that the outlook for economic growth has worsened and the downside risks to growth have increased... The Federal Reserve will need to consider whether the current stance of policy remains appropriate.
Geez man!

What are you waiting for?

You guys have tools for dealing with what happen when interest rates get to zero. They're right here in this 2003 paper - Monetary Policy in a Zero Interest Rate Economy(.pdf).

Based on the current rate of decline on the Dow - a total of 1,400 points over the last five days - you've only got another few weeks before concern about a "zero Dow" will dwarf any concerns about zero interest rates.

Just because Bill Gross says you should slash rates doesn't mean that you can't.

Of course, in the end, it really may not matter whether you cut rates or not, but you never want to be accused of not trying.

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2 comments:

fish said...

Oh well, no book tour for poor Ben.

I imagine he feels a little like the 3rd mate on a sinking ship (I hope you appreciate that I didn't drop the Titanic reference.....I could sing "The Wreck of the Edmund Fitzgerald" if you'd like.) finally reaching the bridge only to see the officers and crew already in the lifeboats rowing briskly away from the blighted vessel...sun settling slowly into the evening sky.

Oh well back to academe.

Anonymous said...

FF's rates went to 1% early in the decade and that set off the great housing bubble and its subsequent crash. It looks like we're going back to 1%; however, preceeding the 1% FFR is extrodinary government intervention into the financial markets.

Not sure what asset is left to inflate but with the amount of money flying around -- this can't be healthy.

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