From NRO’s The Corner:
JP Morgan Chase + Bear Stearns
A great old firm got bought out today for peanuts. I was a partner before and after the Reagan administration. A sub-prime credit casualty.
Paulson and Bernanke have done exactly the right thing. It was a run on the bank. The Fed stopped it right there. No banking crisis.
The big Wall Street banks are in good shape, even with earnings losses they’re still well capitalized, profitable and solvent. Fed stopped it from spreading on Friday; JPMorgan takes them over tomorrow.
The Fed cut the discount rate today by a quarter point. It will reduce target the fed-funds rate on Tuesday. The banking system will function fine. That’s the key.
Paulson was good on the talkies today, emphasizing confidence in the banking system. He’s a capable guy who is working the phones and is in touch with everyone This is how to stop a crisis. Bush was right to put on an optimistic face on Friday in my interview and later in his speech to the N.Y. Economics Club.
Senator Schumer is calling Bush “Herbert Hoover.” But Hoover signed protectionist Smoot-Hawley, just as Hillary and Obama are today trying to break up NAFTA. Hoover signed a huge tax increase, just as Hill-Bama are preaching. The Dems are emulating Hoover. Bush is trying to stop it.
But the administration should be pushing for a strong dollar. That would help.
That is the one thing missing – the push for a strong dollar. On the other hand, the rest of the world will likely start to shore up the dollar pretty soon – a cheap dollar means exporting to America is getting vastly more expensive. For all the Euro-zone’s chest thumping about the Euro’s value vis a vis the dollar, they never really wanted it to be significantly more valuable than the dollar because a strong Euro means Europe has a harder time exporting to us, and a harder time keeping out US exports. Same thing with China, Japan – heck, the whole world. No one wants to be shut out of the US economy, and the falling US dollar is making it harder and harder to sell us stuff, while making it easier and easier for us to go the other way.
One of the best things we could do for strengthening the dollar would be to make the Bush tax cuts permanent – part of our problem is that foreign investors see HillBama and worry that next year we’ll see a very massive tax increase, thus making returns on US investments much smaller…so, much better, for now, to put the money in Euros, gold and oil futures…our task is to drag that money out of those three shelters from potential Democratic tax hikes.
Blogs For Victory 
I agree, Mark. We definitely need to make shoring up the value of the dollar one of the nation’s top priorities. However, since we are where we are, perhaps we can take this financial situation as an opportunity to reduce America’s import-export trade imbalance with China. Just trying to think on the bright side.
_______________________________
“My Boss is a Jewish carpenter.” 🙂
Yesterday was Palm Sunday. I invite everyone to watch this important Christian sermon – (Video): “The Message of the Cross” – Pastor Dr. Charles Stanley, First Baptist Church – Atlanta, Georgia
Romans 10:9 (NASB)
“If you confess with your mouth Jesus as Lord, and believe in your heart that God raised Him from the dead, you will be saved.”
On the one point a strong dollar is the solution to the overall problem of the US economy but it isn’t a magic bullet. There needs to be a good long look taken at corporate taxation as well that would allow a little loosening around the collar for companies hesistant to do M&A in today’s climate.
But you guys are dead right on the dollar an ¥88/$ is when the panic will set in I am told by an economist friend.
OT,
Freedom 1,
Is that the same Charles Stanley who used to be the head of the SBC that said if he got divorced he
would resign?
If they would sack the IRS and replace it with a flat retail tax, they would do much better in the long run.
And nobody could complain, every one would pay the same rate.
Of course, by cutting out the IRS, we would save hundreds of millions in Government spending, which the Democratic Party would use to go on a spending spree to help purchase non government lands to sell to thier friends in the developement industry.
They would probably want to build more houses and support thier real estate and mortgage buddies.
js,
That flat tax on sales would have to be 25% or higher to cover just the cost of the Federal Budget FY 2009. This would end all the debate about taxation for all time, for no one would be able to dodge this tax it would be built in. That tax would have to apply to all consumer and service goods as well as medical care and you would cover Social Secuirity for quite some time. The average American would feel a 9 to 13 % reduction in their real outlays for taxes. However what you describe since the wealthy buy more expensive items and in higher quantities would be a tax increase on the wealthiest people in American society.
And therein lies the reason it has not been done.
Paulson and Bernanke are the reason there is a sub-prime crisis. They did nothing to stop the predatory lending that causes the crisis. They were warned by the states attorneys of all 50 states and did nothing. So each state passed it own laws to regulate sub-prime lending. But in 2003, during the height of the crisis, Bush invoked a clause from the 1863 National Bank Act that preempted all state predatory lending laws and then made new rules that prevented states from enforcing their own consumer protection laws against national banks. Bush, Paulson and Bernake did everything in their power to let this crisis run its course.
Why would Bush & Company knowingly allow predatory lending that would cost the citizens of the US their houses, pensions, and jobs?
They deliberately sabotaged our economy. Where they hoping it would not fall apart until a Democrat took the White House?
And why would anybody trust anything anybody from Wall Street or the White House had to say about the economy?
Lehman Brothers Holdings Inc. is going to fall next. DBS Group has already told their traders not to accept any new transactions that involved LB. This is the same message sent to their traders a week before Bear Stearns fell.
Did you know the Feds are financing the JP Morgan Chase + Bear Stearns takeover to the tune of $30b, yet Bush will not allow any meaningful legislation to help the home owner.
freedom 1 – my boss is a jewish mason.
these vocational descriptions of Jesus were re-written to substitute “carpenter” since they hated the phoenican masonic guilds in which Jesus apprenticed.
haven’t u noticed the vast forests across the (desert) mid-east from which they harvest a huge supply of raw wood? even now, today – look at the structual building methods.
oh that’s right, they also removed all references to Jesus’s teenage years instead depicting Him as instantly growing into a man from an infant.
never mind…
part of our problem is that foreign investors see HillBama and worry that next year we’ll see a very massive tax increase, thus making returns on US investments much smaller
Yep. This whole economic crisis is because investors look at HillBama and worry. Of course it is. It has nothing to do with the current administration or the previous 7 years of GOP policy. That has nothing to do with it I’m sure. It has nothing to do with deregulated housing lenders. It has nothing to do with middle and lower class people getting to the point where they can’t afford necessities as their jobs are disappearing and their wages are stagnant.
Pay no attention to the man behind the curtain. Blame the prospective HillBama presidency!
Joe,
I think its fairly clear that the economy is in the tank right now. But please explain the specific economic proposals of Obama and Clinton which would help turn this around?
A tax increase?
Confiscation of oil company profits?
Price controls?
Ending the Bush tax cuts?
We’ve already heard why Bush and company has destroyed our economy. We are all waiting to hear from you what positive proposals your candidates have.
Phnx,
So what about McCain’s? Continuing the current administrations economic policies which have resulted in the economy where it is today? The fact that the other candidates acknowledge the problem and offer other solutions to correct it speaks for itself. Obama has outlined a plan, as have Hilary on their websites.
What is the real problem is the focus on whose ‘spiritual adviser’ is more racist, instead of how each candidate can help the nation recover from a possible depression. Or their stance on any other issue which is of the utmost importance to the nation.
McCain’s stance on the economy right now will spell disaster for him in the November election. If he wants a win he has to start re-thinking his position as well as his stance on the war. He will have a much easier time with being labeled a flip-flop than bush the third.
Especially with a falling dollar, it seems to me there’s never been a better time than now to invest in America in a way that is both cost-effective and sustainable, while at the same time creating quality jobs and reducing the trade deficit in a lasting way.
Raise the Fed rate to 5% to stave off inflation and let the economy cycle itself back into growth.
What Bush and Treasury Sec’y Henry Paulson have done with Bear Stearns is to nationalize an investment bank. And before any of you chaps jump in to say Bush had nothing to do with that many news sources are reporting that they signed off on the deal that would allow the Fed to add 30 bln USD of liquidity and that they approved the purchase of Bear by JP Morgan Chase.
phnx,
the point isn’t what policies this person has or the other person has. The point is it is downright foolish to say the economy is in the tank because “foreign investors see HillBama and worry that next year we’ll see a very massive tax increase”.
4. Carlton Pryor
You must be smokin pot.
The current tax system promotes waste in the government by giving them unlimited amounts of cash flow. This is why we have such a huge federal budget, because they can hide so much taxation from the people, resulting in double and triple taxation of incomes.
A 17.5 % flat sales tax, offset by credits in paychecks for low income households, would be more than enough to support our Government.
As the economy grows, so can the federal budget. If it shrinks, so be it. Our elected officials can use the elimination of the IRS as an example of how to save money, the IRS 2006 budget was in excess of 34 Billion dollars.
Any tax system that over taxes people, and forces them to file returns to get thier money back is a gross overstep of government authority. Last year, the IRS sent out refunds to over 110 million households in the USA.
Thats money that the Congress already spent and had to give back.
Simplification of the Tax System is the best way to keep them honest, and on budget. The whole thing is a giant lie, its not fair.
the IRS 2006 budget was in excess of 34 Billion dollars…
OR…………. not even 3 months in Iraq.
Amazing how that happens.
“Inflation is always and everywhere a monetary phenomenon” – Milton Friedman
The fed cuts interest rates by buying securites with what’s called checkbook money, that is checks not backed by anything. This is the same as printing money. Every one of the authorites on monetary policy, from Hyeck to Friedman to de Soto will tell you that it’s the creation of new money that causes inflation. If you want a strong dollar, the fed has to quit printing money, aka stop lowering the interest rate, and stop making the implicit promise that they’ll bail out overleveraged illiquid banks.
I have to blame this slightly on Friedman and the monetarist, from their view that the problem of the great depression and other economic downturns was a failure of the government to bailout the system. Bernarke is just following this. Why should the banks care how leveraged they are if they think the fed will just bail them out? The government has moved hundreds of billions of dollars of bad debt onto the backs of working taxpayers over the recent months. This is nothing but socialism for the rich.
Anyways, J.P Morgan got a great deal, they bought their shares for about 11 cents on the dollars. Shows the importance of liquidity.
This will also keep the real values of bear stern’s synethic securites and deritives hidden. There’s no telling how many other banks would be dragged down with full tranparency.
“Raise the Fed rate to 5% to stave off inflation and let the economy cycle itself back into growth.”
– Carlton Pryor, Lead Economist, TED-OG
If you did that right now you would destroy the banking system….
There is no short term solution. There was malinvestment and a real loss of value, all you can do it move stuff around and hope to keep the financial sytem solvent.
It’s after the shakeout and market clearing process is over that you need to reform the system, not mid-crisis.
I do however believe that the current bailouts should be as minimized as possible, but should be conducted through monetary and interbank policy. I don’t like these debt swaps at all.
Whenever it’s another country facing such a crisis, this is exactly what the US advises – keep interest ratest unchanged, don’t bail out the crashing banks or companies and weather the storm. It will be difficult, but with short term support from other countries, it will be possible.
Why does the fed not practice what it preaches?
You know the fair tax that everyone keeps suggesting here is a phenomenally simple solution to an overly complex and bureauctatically intensified problem.
I use ‘fair’ instead of ‘flat’ because the rate would definitely not be a flat sales type tax accross the board. What most economist who support it propose is a lower rate on staple items and necessities and a higher rate on luxury goods. It is more of a graduated scale than a simple flat tax across the board. This would still give tax breaks to the poor and tax the affluent more, but it would be by their choice and not the government forcing them to give. Thus the name ‘fair tax’ has typically been adopted.
It is an ingenious idea. Simple, easy to implement and eliminates most tax fraud and evasion. Even those working in this nation illegally, instantly become part of the tax solution instead of a problemed drain on public funds because they will purchase goods here.
Also, for all those who bemoan the current economy, though it is getting worse, this is nothing we should not have expected. We have had twenty-five (25) straight quarters of growth. That is over six years of strong economic growth with no major corrections. Some of those quarters broke long standin records for increases and highs in. The housing market has been booming for over seven years and we knew it had to slow at some point. We knew this was coming and most economist expected it to arrive sooner than it did. You cannot have unchecked growth in an economy without expecting corrections. The housing market is now in the process of correcting itself and in a few years will return to period of renewed growth, provided the federal government does not screw with it and jack it all to hell. It happened in the sixties, seventies and eighties and the late nineties saw a small housing correction. History tells us if we just hold tight the market will naturally correct itself.
Our chief problem right now is fuels. Petroleum is trading at unbelievable rates and ethanol is irresponsibly raising the cost of food stocks for little or no benifit to the environment and to the detriment of the economy. Estimates say that as much as a third of the price of fuel is pure market speculation and OPEC is sticking to its guns about releasing more production claiming that it is American economic speculation that is causing our fuel crisis and absolutely not a limited supply issue. Meanwhile, increased ethanol production is casuing base food stocks such as corn and grain to soar in cost, only compounding the effect that increased fuel cost are having on the market.
My point? We are doing this to ourselves. If futures investors would realize that there is not a global fuel supply crisis and stop trading the hell out of petroleum futures, that market would correct itself as well. We also need to stop massive increases in ethanol production because in is damaging our economy and provides minimal if any benifit to the environment when the entire process of its manufacturing from growth to distillation to refining and its much lower fuel effeciency are taken into consideration.
“ …from Hyeck to Friedman to de Soto will tell you that it’s the creation of new money that causes inflation …”
No, inflation is calculated on buying power and the increase or decrease in wages is instrumental to the inflation calculations. Specifically, the relationship of wages to productivity is the fuel that drives inflation.
“…Friedman and the monetarist, from their view that the problem of the great depression and other economic downturns was a failure of the government to bailout the system. …”
Not even close; Friedman laid the blame on money supply, the Keynesians wanted a government bailout, and that’s precisely what Roosevelt did.
Dasein, you’re confusing what inflation is defined as, with what is the underlying cause is. Wages and prices will rise faster relative to productivity when you print money. This is acknowledged by like every authority on monetary policy. The real bills doctrine is considered false by like 99% of American economist. Did you not see the quote I started my post off with?
Friedman blamed overly tight monetary policy on causing the great depression. In other words he said the fed didn’t print enough money. If you read a monetay history of the United States by Friedman, he says the government should have provided emergency loans to failing banks and should have bought government bonds with new money to increase liquidity(lower the interest rate). He also suggested suspending deposits.
This is exactly what Bernarke is doing now minus suspending deposits.
This is intervention, this is a bailout. When you print money you don’t create wealth, you transfer wealth. When the government holds bad debt, the taxpayers will pay for it. Look at the S&L crisis for a good example of what can happen.
We need less, not more government involvement. Artifically inflating the dollar will only make the fell worse.
“My point? We are doing this to ourselves. If futures investors would realize that there is not a global fuel supply crisis and stop trading the hell out of petroleum futures, that market would correct itself as well.” – Concerned Citizen
That’s completely backwards. More buyers and sellers, a more liquid market, creates more accurate prices. If you really believe this, short oil futures and get rich, if everyone starts shorting the price will go down.