I'm not inclined to post twice in one day, but the news is coming at us hot and heavy.
The Fed's bailout of Bear-Stearns, through intermediary JPMorgan Chase & Co., is the big financial news of the day. Yesterday, the talking heads at Bear-Stearns were telling us that the company had no liquidity problem. Well, I guess they lied. They were one or two margin calls short of going belly-up, but trying to hold out until the $200 billion Term Securities Lending Facility (TSLF) kicked in on March 27. Whoops!
Personally, I'm happy to have this evidence that Bernanke and the Fed probably understand that the problems in the financial sector have little or nothing to do with interest rates, and everything to do with liquidity. I just wish they might slither out from under the thumbs of Wall Street and the Bush Administration to stop reducing the Federal Funds Rate. Those cuts do nothing but provide momentary stimuli to the stock market, allowing the smarter speculators to cash out, at the expense off the poor suckers still listening to brokers earning per-transaction fees.
Another rate cut at the next meeting of the Fed only will accelerate the precipitous decline of the dollar. If banks are afraid to lend to each other at three percent, they won't be especially less fearful at two-and-a-half or two-and-a quarter. As for the "balance of trade" argument for a weaker dollar, well, it hasn't done shit for Chrysler.
It is well past time to turn away from the economic goal of endless, unlimited growth, and start thinking about economic stability again. The so-called economic "expansion" of the Bush years served only to make certain favored individuals disgustingly rich while the rest of us either held on by our fingernails or fell behind.
For virtually all the Greenspan years, the goal of the Fed was to fight inflation. After all, in those days, inflation meant the big banks would be paid back with money worth less than the money they lent. Today, on the other hand, years of inappropriate but profitable lending. plus reckless backing of leveraged buyouts, have put the banks in an opposite position. Their debts are pushing hard against their assets, and a bit of inflation might do them a world of good.
As for the rest of us, well -- perhaps we should bend all the way over and kiss our collective wallet goodbye.