Stock Market to Bernanke: Hints Aren't Good Enough

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, so 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.

Click 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.

Comments

[longtermstocks:]

We need to stop worrying about short term and focus on long term.

2008 Oct 07 05:44 PM

[dawase@gmai...:]

It seems like the Fed/Treasury have put a tremendous amount of liquidity into the system and are waiting till it starts to have an effect. While I'm not sure a rate cut would really have any effect on the tight credit markets given where the spreads are already, I think it may be the signal needed by equity investors to help restore some confidence.

2008 Oct 07 05:50 PM

[Jackson Cash:]

No way. The problem is and continues to be risk and valuation. Because of the lack of transparency into CDS's and all this off balance sheet (tier 3) garbage investors will flee like usual.

2008 Oct 07 06:19 PM

[JohnKing:]

The eulogy was appropriate.

They have no more knobs to turn. The only thing left to do is unthinkable; uncover the fraud in the banking/political system and let it blow up.

You can't hide all that magic paper forever.

2008 Oct 07 06:24 PM

[bobomite:]

The Federal Reserve is the problem. When your money is created through debt, it is the bank that wins.

2008 Oct 07 07:59 PM

[scobbydube:]

If the powers to be think the overnight federal funds at 2.00% is a problem, they need to rethink their strategy.. Banks aren't lending to one another because of something other than the level of interest rates. You know what might help more than lowering the funds rate, lowering the rates that MAIN Street pays.. How about some help there instead of on Wall Street..

2008 Oct 07 08:34 PM

[sf94127:]

Bernanke's "speeches" are excruciating. He dances around issues instead of speaking plain and straight. He must have mentioned his concern about inflation three times!!! No wonder the market crashed.
And Bush is no help either,

2008 Oct 07 09:44 PM

[Lin:]

John King , the eulogy was appropiate , absolute riot ! How can I laugh when we're all going down the tubes ! We are muuuch worse off than in the Great depression . What's coming will make that look like a walk in the park ! There is absolutely no US economy , has been a facade for 25 years , built on debt / leverage , Guess what , it's unwinding . we are freaking doomed !

2008 Oct 07 09:47 PM

[dougnhi:]

It's counterintuitive, but we need MORE TRANSPARENCY, not less. Folks are arguing for suspension of mark-to-market accounting standards, eliminating short selling, proping housing and market prices, and even using new government SIVs to hide bad debt. You name it, they've ad-hoc'd a bandaid for it. When will folks realize that the current policy actions by Bernanke and Paulson are a national disaster of biblical proportions? These folks truely believe they can conquer the business cycle through manipulation, and all they've done is trash our currency, run up huge national debts, allowed moral hazard to run amok, and caused a general mistrust of market mechanisms. They're thinking all wrong. The way to healing is to accept the human nature of the business cycle, understand that the greed and moral hazard have run their course, and now the inevitable correction can't be stopped. We need to finally force the bad institutions out into the open and let them fail. We need to expose those who have thought they could flip/flop/and steal their way to enormous profits on the backs of other peoples money, and deal with them vigorously. We need to allow honest folks who made mistakes to unwind with some pain so that lessons will be learned for the future. We need to REWARD those who saved, avoided debt, and were responsible as the NEW CYCLE WINNERS via reduced prices that they can pay with hard earned/saved dollars. Will the corrections be ugly? Sure. Will we all survive? ABSOLUTELY. Come on folks, enough games....let's get it over with and move on. We need to distance ourselves from the Bernanke/Paulson doctrines, and reestablish the common sense that made us great many years ago. This something for nothing generation and manipulating elitist class of folks need to go. Did anybody really think it would be wise to have Goldman Sachs running the world bank and our treasury department? We were deluding ourselves. Time to wake up and get real. It's not too late to save our democracy from these idiots, but the longer we wait, the worse they'll leave it.

2008 Oct 07 11:28 PM

[sf94127:]

Well, you can tell a Princeton man but you can't tell him much.

We have ugly inflation, Boring Ben???? Wake up; in 19 days at current rate drop we are zeroed out.

2008 Oct 08 01:43 AM

[Mr.G:]

tim dont be surprised if by friday markets arent open for trading and bank branches are temporararily closed w/ limited atm withdrawals - the last rate cut did absolutely nothing except increase the spread - this new global one will do the same - (lets see how long it takes the street to figure this out) - I expect the fed and the treasury will stop time(close themarkets) and catch up and fix some of the very screwed up fundamentals in the market - they will stack the deck so that when the market reopens it will climb instead of dive -it will then remain in a much smaller volatility range or channel for a very very long time -but stabilisation is much better than the rapid declines we have seen -

2008 Oct 08 08:47 AM