Farrell: Time To Give Ben Credit
"Who will buy my sweet red roses? Who will buy this wonderful morning? Such a sky you never did see. Who will tie it up with a ribbon? And put it in a box for me."
Charles Dickens's "Oliver" (the musical version here) had a tough sell trying to get his sweet red roses and a wonderful morning tied up in a box so he "..Could see it at his leisure, Whenever things went wrong."
Plenty has gone wrong for Ben Bernanke lately, but give the man credit. He does not stop.
When all of Washington wigged out about AIG bonuses and tried to figure out the politically expedient way to parley the hand into the next election, Ben went all in and kept trying to save the system.
Ben might not have read Dickens, but it looks and feels like he has bought into the Colin Powell doctrine of warfare. Use all the force you can and use it right away. By purchasing another $750 billion in mortgage-backed paper and $300 billion in Treasury debt, Bernanke hopes to pull interest rates down across the whole risk spectrum. If mortgage rates were to fall to 4.5%, virtually the entire mortgage complex would theoretically be refinanceable with enormous impact on both the housing market and consumer incomes.
Along with the expanded TALF, the private/public partnership to buy impaired debt, and the FDIC program to purchase loans, the financial side of the governments house is doing what it can to make up for the political sides' failings and utter lack of mature leadership. The Wall Street Journal wonders "what healthy bank, what hedge fund, what private equity firm wants to take part in an Obama plan to sell off toxic assets, or to revive consumer lending, with the knowledge that they might be Washington's newest bonfire? Executives are already working to get out of TARP, fearful of political punishment." The guidelines that accompany today's expanded rescue announcement are going to have to be clear that making a profit is allowed and not retractable.
That aside for a moment, it does appear that slowly and begrudgingly the TALF is getting underway and some worry this amount of money being pushed into the system will be horrifically inflationary before too long. With capacity utilization at 67%, the lowest since record keeping was started in 1948, and unemployment high and rising, any road to inflation will have to, says James Paulson of Wells Capital, "first pass through higher stock prices."
The environment is getting better.