Letters to the Editor
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Andrew Mellon and the Liquidationists
http://www.prudentbear.com/index.php/CreditBubbleBulletinHome
Doug Noland's point on the redirection of resources is scary. We all know that government borrowing crowds out private sector borrowing, although it is hard to imagine a case in which there is not enough credit to go around, isn't that what is happening right now?
Bill Gross made the statement on CNBC that the mark to market problem in housing was a liquidity problem. Not sure how many caught that. He expects the Feds to underwrite the mortgage banking industry.
What is interesting is that this time they are bailing out the failed banks before any of them actually fail. In brief that is the anti-liquidationist position of the Fed. Without the threat of liquidations, nothing ever gets marked to market, and these exotic derivatives which were traded privately are never valued properly. How in the hell is any amount of regulation going to change that?
The (Republican?) premise of pre-emptiveness in everything may avert disaster temporarily, (bomb Iran today, pay the price for a hundred years?). Short of completely dismantling the Federal Reserve (good idea, and rumor has it that Obama has Paul Volcker waiting in the wings) there are no halfway measures, at least to Bernanke, for whom the threat of liquidation is the same as liquidation itself. Hence Bear Sterns was dismantled in a single weekend, behind closed doors. No liquidation there, no sir, and as Bernanke said, taxpayers will get their money back, eventually. Tell it to Bear shareholders.