Friday :: Dec 5, 2008

Panicked Brain Splat

by paradox

Looking over the latest astounding proposal from Bernanke at the Fed and Paulson from Treasury—subsidizing new home buyers with a ridiculous 4.5% 30 year mortgage—I think a plain fact needs to be stated much more clearly related to our earnest monetary officials: these guys are panicked.

This is a crucial fact in understanding what Bernanke and Paulson are trying to do as they desperately scurry around, but it’s been hidden by two factors: one, it’s very much their job not to appear panicked, it’s easy to be fooled by dark suits, a good haircut and good acting skills, they appear calm as they propose each new nuclear warhead implementation of policy in the crisis.

Much more obscured in the issue is why they’re panicked--and I think the main reason remains hidden--is that the primary event is difficult to understand and even harder to write, so very few have, but I will do my stumbling amateurish best here.

Bernanke and Paulson panicked when the money markets experienced a real-time 21st century run late in the summer, there as a total collapse of confidence in some of the most sterling pillar names in finance, fund managers panicked and funds actually became busted, the market froze with funds eventually paying out fifty cents on the dollar, if their investors were lucky.

This was never, ever supposed to happen again in a modern American economy after the Depression, Bernanke’s life study. One of the reasons Bernanke’s panic is not more widely acknowledged is that the short-term effects seemed so obscure, fund managers and payroll managers were most greatly affected, the money-market eventually clanked along poorly again, and the event was lost in a blizzard of late 2008 economic and political news.

The market and scope is irrelevant, the fact that finance players panicked and a market segment froze instantly slotted Bernanke and Paulson as historical rank financial failures, it was their job to make sure the unthinkable never happened, but somehow it did and anyone could see this spiraling out of control to another finance sectors like private banking. Think the public’s trust in FDIC is irrevocable? I don’t, and neither does Paulson and Bernanke.

I don’t know for empirically sure the minds of Bernanke and Paulson, of course not, but after this latest proposal it isn’t necessary, no rational federal monetary official would ever come up with something like this.

By offering 4.5% for new buyers Bernanke and Paulson propose to radically—note that word carefully—change the rules of the housing market. This will instantly create a market distortion just as bad as what occurred before when the stupid banks threw out lending rules and agencies said everything was AAA good, all kinds of actors will rush in who in reality had no business being there if the market were free and fair, thus causing huge problems eventually.

Tossing blithely aside all the Americans who would be horribly screwed if they owned a home now, the radical nature of housing market intervention and the blithe acceptance of locking in disastrous long-term problems (the latest disasters of distortion are staring them in the face!) the action can be classified as nothing but panic, these guys have lost it, too many months of stress and failure.

Just because one is panicked doesn’t mean they don’t know the right thing to do, but our economic mess is complex, solutions must be nuanced, thought-out, and implemented carefully. Again, this latest-humdinger of distortion, un-fairness and radical socialization smacks nothing short of panic, there is a measured, small proposal out there by official Bair to help out troubled mortgages, but Bernanke and Paulson desperately grabbed the stupid radical solution, it says a great deal.

This brain spat should be seen for what it is, an laughably unworkable tactic by panicked Federal officials. Whatever sense and reason they had earlier in the year has been very understandably blown up by a summer and fall of unending hell, and they should be ignored until the new Obama Fed and Treasury officials replace them.

paradox :: 9:35 AM :: Comments (5) :: Digg It!