Bernanke On Bear Reveals His Market Fears

To yours truly, the most interesting part of the Bernanke testimony was his comment about how the Bear Stearns (BSC) deal had to be done before the Asian markets opened. If nothing else, he pretty much confirmed what we already knew: The dog (as in the market) is wagging the tail (as in the economy,) so the Fed fears the market more than the economy.

Which comes first: the markets or the economy? The Fed, no doubt, wasn’t about to take the time to find out.

What we do know is that the market, in part, is about the perception of the economy.

So, should the Fed fear the market or stick to its knitting of focusing on the economy? Or, given the new world order, are they one in the same?

You tell me.

Comments

[kkin365:]

Herb is a world-class commentator. I invariably read his column in WSJ and listen to his remark over CNBC. (I am a retiree with a lot of time to kill.) On this post, I beg to differ. What is at issue is USA's reputation as a respectable financial market -- the operating word is "respectable." I also heard, in the morning of Monday, 3/17, that the deal had to be done before Asian market opened -- had this not done in time, the sheer weight of Asian selling would, it seems to me, perhaps force the Wall Street to close early -- or even close, period. Being from China with a cynical view of USA's self-praised private enterprise and market econony, what was done is merely another example of doing whatever is needed -- forget about the market being able to right itself.

2008 Apr 03 10:03 AM

[TEB:]

"What is at issue is USA's reputation as a respectable financial market ..."

Exactly. And how do you think it looks to the rest of the world when (a) the US investment banks feed the world several trillion dollars of toxic SIVs over the past 4 years and then (b) Artificially interfere via the Fed to stop them being marked to market, thus prolonging the agony and guaranteeing a slower recovery?

I'd say the Fed's action, while taking the easy way out and claiming to save the market from implosion, have just irreparably damaged our market's reputation as a "free" one. It's now very clear to the world that the Fed serves to preserve the wealth of the wealthy, no matter how corrupt or stupid they are.

The Fed's actions have also pretty much guaranteed a larger meltdown in the future. Witness the "Grand Delusion Rally" that's going on right now in the market. Who are the suckers putting money into the market right now? Not the pros: the options markets seem to be eerily quiet. It's the individual investors who are pumping in their cash and who are going to get absolutely wiped when the big players pull the stops out later. Where will your hard earned retirement money have gone? It will have gone to the investment banks to (partially) cover their losses on MBSs.

Profits are private, losses are public under the New New Deal, initiated by Reagan in the 1980s, rocketed to the moon by Greenspan, and sustained in it's orbit by Bernanke.

2008 Apr 04 11:54 AM