There's Just No Need For A Fed Cut 15 comments
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Paulson essentially said the the underlying economy is strong and that aside from lenders currently paying the piper for "loose lending standards," things are good. He said the current situation will "extract a small toll on growth," but that economy will weather it just fine. So that got me to looking at some recent numbers to do a little checking.
Recent figures (May - July)
-Industrial production: Up 0.7% or a 2.8% annual rate.
-Personal consumption expenditures: Up at a 4.8% annual rate (July data is not yet out).
-Payrolls: have risen a 1.2% annual rate or an average of 135,000 per month.
-Second quarter real GDP was up at a 3.4% annual rate, and nonresidential investment was up at an 8.1% annual rate.
So, is anyone surprised that earnings forecasts for companies other than the financials have not been lowered? Forecasts of earnings for the S&P 500 in aggregate for Q3 and 4 have not been lowered by any significance over the past few weeks, despite the problems in credit markets and the stock markets gyrations. Current expectations call for about 5% growth in the Q3 and about 10% in the 4th.
Why then would we want the Fed to lower rates to save poor lenders? Banks like Wells Fargo (WFC) and M&T Bank (MTB), both of whom have conservative lending practices, are not feeling the effects of "sub-prime defaults." They have no need for a fed bailout; it is only those lenders who thought lending $500,000 to a person without any verifiable income or any money to put down was a neat little idea.
I have stumped here repeatedly for the Fed to do nothing with the Fed funds rate, and still hope they resist the calls from irresponsible lenders. Let them fail - maybe we will get more responsibility from lenders. Even if the Fed did lower the rate, 1/2%, this would have ZERO effect on those people with adjustable rate mortgages who are getting ready for a reset and will not be able to afford the new payment. ZERO.
Those people, to be honest, are not much better than the lenders who gave them the loans in the first place. Rates have been rising steadily for the past year and they had plenty of chances to refi the mortgages last year before the bottom fell out of the market. If they didn't, well, too bad. Please do not waste my tax dollars bailing these folks out. They are in a self induced predicament. What is more important now is getting the point home that if you lend money (or borrow) it and do not demonstrate a solid ability to pay it back, you are responsible for the outcome.
In response to those screaming for a Fed Funds cut, Richmond Federal Reserve President Jeffery Lacker said on Tuesday, "Financial market volatility, in and of itself, doesn't require a change in the target federal funds rate." He also referred to the Feds stated goal on maintaining inflation. "While the most recent months' figures have been encouraging, it is still too soon to be confident that the moderation we have been seeing represents a downward trend." The risk that inflation will fail to moderate, "is still relevant, although some recent reports have been encouraging," he said. Translation? Who cares how the market jumps all around - long term results are what we care about.
Inevitably these loan will be no good and the pain will be felt, let's just pull the band aid off fast and get it over rather than prolong the inevitable.
Then we can move on the the next manufactured crisis . . .
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Sorry my deleted responses weren't kept. Satire is often misunderstood and unappreciated.
Beav
RealWisconsinNews.com
Some informed observers made observations that what Greenspan and company did back then actually created and/or inspired the bubble.
I'd like to give Bernanke the benefit of the doubt here. So far he's been walking the fine like pretty well, in my opinion. I hope it will continue this way. But if it doesn't a new bubble will likely be built soon enough. At least on paper. As USD will no doubt go down and that will take away some of the glory from this new bubble.
Many observers are saying that mortgage issues are limited to subprime. While it may look this way now, i believe if we dig deeper we may see that subprime was just a start. Alt-A next, then ARMs, then the rest of them.
Lending standards were and still are extremely relaxed across the board. In an environment like that fraud has tendency to grow to epic proportions.
The difference between subprime and conforming borrower is what exactly?
Is being an authorized user on other person's credit card really making one a better credit risk? How about a fake job reference from one of those "employment verification" service companies? Unless some people go to jail and media picks this up, fraud will continue. Going to jail takes time. Media is reporting what people want to hear. And people don't want to hear about home flippers going to jail. They want to hear about good, poor people who miscalculated their ability to afford the house, or, better yet, those who were lied to by those evil lenders. People want to hear about those good hard working folks getting bailed out. And of course this brilliant idea first came to the brilliant mind of future president! What a great "feel good" story. Who is going to pay for all of this? Oh, we'll just send Alfonso to China and he'll tell them to buy the paper, he'll tell them it's US government GUARANTEED! And then we'll all have to pay for all of this for years and years. But that's later . . . a different presidential candidate will be coming out with a feel good idea then.
Personally, I *do* feel some sympathy for people just looking to buy 1 home for the purpose of shelter and got bait-n-switched into a dodgy mortgage (Golly, remember that? Back when houses were primarily used for shelter, not poker chips in a global speculative Ponzi scheme?). However, I take exception to the idea that anyone *has* to buy a house. There are other alternatives --like renting, which I'm currently doing as I do not want to be a sad statistic myself.
There seems to be this absurd prevailing mindset where renter = "loser"/second class citizen, and hyper-leveraged homedebtor = "winner". Really an outgrowth of our current "winner take all" and "he who dies with the most toys wins" mindset. IMHO, this is just a symptom of a fundamentally sick society where what you consume defines who you are.
Don't let FUD and hyper-materialism run your life. You have alternatives --exercise them.
you make it sound like it just happened to them somehow.
like they did not make a decision to buy.
this is capitalism, people have choices.
when one makes a decision, one is responsible for it.
who created the bubble if not those irresponsible buyers who could not resist the "easy" mortgages in the environment where "houses never go down".
when someone makes a bad decision, i do feel sorry for them. that doesn't mean that they should be all bailed out though.
not a neocon here either, always been antiwar, not jsut when it's popular.