Posts Tagged ‘malinvestment’

Fed Chairman Bernanke Clowns Around, Exceeds Stock Market Expectations

Sunday, November 2nd, 2008

Anyone who’s watched the business channels for more than an hour or two will have been well indoctrinated in the magic thinking that is the Federal Reserve mandate.

The Fed plays “an expectations game”.  In order to maximize the impact of their manipulation, the Fed will try to “surprise” the markets, because if the markets “expect” an action, they may not react.  Often it’s market analysts explaining what the Fed could do that might or might not meet market expectations, or surprise them.  We also hear members and spokespersons for the Fed adapt this habit of speaking.  You’d think they were generals in war, analyzing enemy preparations.

But if surprises work so well in that piece of the economy, why not try them everywhere?

UPS could surprise its customers by sometimes delivering next day, sometimes putting your package in storage for six months, or perhaps even delivering something when you’ve asked for a pickup.

Burger King could sell its customers dollar burgers on Wednesday, thirty-five dollar porterhouse steaks on Thursday, and plumbing supplies on Friday.

If other economic sectors would follow suit (suits being available at garden supply stores… or are they? Maybe your expectations are being managed again… ?), then you can start to see that soon we’d have an unprecedented economic boom, since according to Fed lore, no one knowing what’s going on is a sure path to success (as long as it’s not so sure that we can’t still be surprised).

Has the Fed itself fully explored all the possibilities for surprise?

Maybe Chairman Bernanke could show up at press conferences in drag or funny costumes:

“Chairman Bernanke surprised the financial press today when he attended a briefing wearing an old raincoat and a Harpo Marx wig.  Attendees were further taken aback when the Chairman answered all questions by honking a clown horn.  Reporters quickly adapted, requesting that Bernanke answer questions with one honk for yes, and two honks for no.  All market participants were adjusting to the new conditions, but then Chairman Bernanke yanked away the coat and wig to reveal a Spiderman costume, stunning markets and precipitating an enormous rally…”

While Treasury Secretary Henry Paulson may or may not be glad to see us, but always carries a bazooka, for the Fed, the talk is of how many bullets they may have left, and how they can maximize their potential for impact on the markets.

And why use bullets on the market?  Why surprise them (us) at all? This talk is of a clear effort to take a group of actors who believe one thing, and get them to believe another.  It’s the not very disguised language (in fact pretty much says what it is) of confirmed serial bubble makers.

Yet when the bubbles inevitably occur, then the folks with the self-proclaimed power over expectations, with the bazookas and bullets, have an epiphany– it’s the market’s fault.  “Sure, we had all the advantages, privileges, power and information, but we couldn’t have foreseen that if we threw money at people, they might try to grab it.  We need more bullets to get the benighted, frightened public to trust (and borrow) again so we can re ignite the markets that we perpetually mistake for the economy.”

It should be pretty clear who provides and produces, and who makes noise and pretends.  Unsurprisingly (the actual word that the economy as a whole prefers), the people who produce goods and services are the people who produce goods and services.  It isn’t Wall Street or the banks, and it certainly isn’t the Fed or the government.

Creation of money and credit doesn’t, in the long run, produce anything except a boon for the creators and early spenders, and confusion and malinvestment for the rest of us.  Attempted management of the perceptions of the beneficiaries and victims of fiat money and credit creation may sometimes keep the game cycling a little longer— but more time spent obliviously making poor investments is a worse outcome, not a better one.

Banks and government don’t grow or manage the economy; they don’t run it, expand it, or stabilize it. What banks and government do to the economy is rape it.

And what would any rapist do to try and dodge consequences from his crime?  Blame the victim, of course.

By Les Lafave

Abolish The Federal Reserve – themaestrosrep.org

Treasury Secretary Henry Paulson Considers Name Change for Office of Financial Stability

Monday, October 13th, 2008

The Treasury’s newly formed Office of Financial Stability may be renamed “The Office of Financial Stability, Tee Hee Hee”.

The change of name for the office made responsible for administration of the 700 billion dollar bailout fund under the Emergency Economic Stabilization Act of 2008, is being considered in view of market reaction to its creation.  Other possibilities include, “The President’s Working Group on Fubar”, “The Wall Street Employment Opportunity Commission”, “Malinvestment, Inc.”, or if a folksy sound polls best, “Paulson and Friends, We Inject the Capitul into Capitulation”.

Secretary Paulson said in a statement last week following the meeting of the G-7 nations (and o.k., now this part of my editorial is true), that “it’s naïve of the markets” to expect that different governments with different structures would all want the same solutions.  (The markets will probably apologize the only way they know, by naively plummeting in horror.)

But is the market’s wish really all that naïve?  Capitalism is capitalism, surely, and a capitalist solution might be better in the long run than a solution from someone’s secret police.  Secretary Paulson’s comment is an odd one for a capitalist to make– though it makes perfect sense as a comment from one of a gang of fascists, where after the quest for raw masses of power is taken care of, priorities may need a little fine tuning from one fascist state to the next.

Different structures aside (or not), the G7 has vowed to take action, and the G20 agreed (Gee, 20?).  If there was a G100, it probably would agree too– in government logic, the key to everything now is to “inject capital”, and portray confidence (with a confectioner’s coating of empathy for the little people they’ve screwed out of hopes and dreams.)

In the “naïve” logic of the markets however, this is no longer credible.  While spokespersons for the markets hopefully express support for the government moves (perhaps as a trial balloon for a job in government before Wall Street lays off everyone except a skeleton cleaning staff), the markets themselves are no longer clearing this disinformation.  There isn’t a reason for confidence when there’s now recognized massive malinvestment, and the government solution is to add more.

The plunging and “freezing” markets were actually trying to fix the systemic problem, in the same way that the necessary but unpleasant gag reflex would try to fix the systemic problem of a seven year old who just ate half a bag of Halloween candy.  However, the G7 (and the Gee, 20?), are offering up banana splits with chocolate sauce and pudding cake.

This is beyond Treasury Secretary Paulson’s capability to understand– not because he’s stupid, but because a lifetime of finely tuned self-serving bias (a Wall Street specialty) makes him incapable of seeing himself as not part of the solution.  Unfortunately for all of us, the markets and the economy will continue to try to teach him that his is not a creative power.

By Les Lafave

Banking Reform – themaestrosrep.org

A Credit Collapse, Not a Financial Panic

Sunday, October 5th, 2008

If public officials herd beach patrons into shark infested waters, and start chumming, and then after the first shark bite the patrons start to scream and flail about trying to escape, thus causing more drownings than shark bite hemorrhages– we’d properly be more apt to label this stupid or criminal, than call it “a panic” on the part of the beach goers.

Our financial crisis has a lot in common with the above shark feed.  Although the results from the credit collapse may seem insane, confusing, and scary– they’re really the normal expected result of government directed money and credit expansion.

Austrian Business Cycle Theory, which describes the reasons for the inevitable downside to artificial expansion, suggests that our benighted government’s thrashing around to try and thaw the “credit freeze” (and which seems like the real panic, if there is one), is only treatment of a symptom and can’t succeed.

This is not just about people not trusting each other– a credit freeze, or a “liquidity trap”, that makes stimulus ineffective.  This is about a growing realization that there are not enough resources available to complete or use all the unfinished and/or uneconomic projects out there over a timeframe that would make them economic– a realization that projects and their owners must now fight for their lives. Now, because of the over invested position that credit expansion has put us in, and unlike a “normal” economy, this is a zero sum game– one project or company’s life may well mean another’s death.

In other words, the “fear” and “distrust” in the markets should probably instead be called logic.  The Fed and the Treasury can do whatever they please, pump in or not pump in any amount of “liquidity”, buy or not buy any assets, whether trashy or public profit making, or both.  Restoring trust or liquidity is not the key issue, and is at any rate impossible in this environment.

The credit collapse is about too much investment, and investment in the wrong things (as Austrian Business Cycle Theory calls it, “malinvestment”).  Business has recognized the malinvestment (finally), and it can’t be unrecognized.  The Fed and the Treasury are frantically trying to throw in more resources to fog investors up again, but as the expression goes, they can only throw good money after bad, to distribute and ultimately deepen and extend the pain.

To sum it up in short, brutish nastiness: there is no fix other than time, depreciation, and failures.

It’s not likely that President Bush will call a press conference to talk about economic policy, and say, “My fellow Americans, I’m announcing today that this is not an aberration; in view of what we’ve done, this is normal.  Unfortunately, there’s too much rationality in the markets. Failures are an option.”  If he did, then after a brief stunned pause while people decide if they’re frightened because they can’t believe the statement, or because they can, everyone would of course take the only logical course, and scream and run in circles.

Whatever happens (with or without fantasy honest press conferences), panic will get an irrationally large share of blame.  In the too convenient world of ever unevolving politics, panic is an easy scapegoat.  As in, “Obviously, if it wasn’t for that darn panic, the Feds would have had everything under control the whole time, so let’s just go back to the way things were.”

If that attitude gets as much traction as it’s starting to look like it might, then the subject of real monetary reform and real banking reform will slip off the table in a puff of snake oil (the way it always does).  What a tragic missed opportunity to add to the tragedy list.

By Les Lafave

Banking Reform – themaestrosrep.org