Here’s last nite’s WTF Glass Steagel video:
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http://www.cnbc.com/id/15840232?video=687667784
March 17, 2008 Kudlow & Co: Economic Realist Version
March 18, 2008 5:30pm by Barry Ritholtz
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Bear on eBay
Kudlow didn’t like that “realist” part. I played it over a couple of times. Good one!
That was…vaguely uncomfortable. Makes me think either:
(a) he bought five thousand shares when Bear Sterns was “down” on Friday,
(b) he thinks his buddies should be protected from layoffs even when their company is run by loons, or
(c) his producer has been telling him to act like Cramer.
Frankly, I would rather listen to Cramer than this strident shill.
A lot of pissing and moaning about poor Bear Stearns and how the Fed done ’em wrong.
I don’t recall hearing anything about how the Fed shirked their regulatory duty and allowed BS to create so much crappy paper in the first place.
Nor any complaints about the morality of Bear creating such crappy – oh wait, that’s right — it’s just business.
Could Kudlow be a bigger Douche?
I’m convinced his parents must be brother & sister.
What a putz.
I would have asked: exactly how would giving Bear Sterns direct access to fed credit earlier — so they could lend even more money to gamblers — would help how?
So if they could borrow even more money to bet – then their debt to equity would be 50 to 1 instead of 30 to 1 – which helps how?
Common Barry, Kudlow is your friend. I know he must say stuff off the record about reality. You could allude to him without quoting him. He can’t possibly be as blind as he seems. Or does he have Wall Street’s equivalent of Potomac fever?
Market moves like today’s remind me of what it must be like watching cannibals feast.
What do you suppose would happen if the math formulas behind option and futures pricing was disconnected from the actual stock price? Suppose stocks went up or down from ACTUAL sales instead of Las Vegas bookie bets? Oh, but we couldn’t have that, could we? It would be a bitch to manipulate a large market with a small amount of money. The good thing about knowing how this works is that when someone says the system isn’t gamed you don’t have to get excited or argue. Just say, “Right, uh huh”.
No green tie on Patrick’s Day Barry – ah come on!
I found that video very annoying. “Trust the market” guys become “the Fed must save us” guys oh so easily.
Kudlow’s position strikes me as at odds with his free market credo.
Bear knew the rules when it took on the risks it did. They didn’t have access to the discount window, but chose to hold potentially illiquid assets anyway. We all make choices like that, and sometimes we lose.
If anything, free market dogma leads to the question of why commercial banks should have access to a government sponsored lender of last resort. A true free market adherent would assert that to the extent a market failure requires public intervention, that intervention should be limited to small depositors only (fdic), not provision of preferential liquidity to allow commercial banks to take undue duration risks. If commercial banks, on behalf of their shareholders, choose to take duration and credit risk which subsequently blows up, the shareholders, bondholders (and management) should bear the costs if capital is to be efficiently allocated. Giving anyone a free put on a potentially illiquid investment invites rent-seeking.
Kudlow’s view that the discount window should have been made available to an investment bank only after they get their tit in the wringer just adds him to the list of those calling for free market profits, but socialized losses. Maybe if you put it to him in that way, he’d agree. I’m not holding my breath, but ya never know.
Kudlow missed the whole point. It wasn’t that the Fed should have opened the window to the I-Banks after the repeal of Glass Steagel it was why Glass Steagel was repealed in the first place.
Glass Steagel was inacted to prevent what we just went through!
You did show admirable restraint. Congrats.
Last night Kudlow didn’t want a cut. Tonight it should be exactly what the market needed because Kudlow is never negative on the markets.
If the market goes green, it must be right according the the way Kudlow thinks.
Ross,
The real point is this. The law might have mandated that only one-armed females could access the discount window on rainy Tuesdays. Whatever the case, Bear knew the rules and should be expected to live or die based on the rules prevailing at the time. To do otherwise invites behaviour of the type we’re seeing the effects of now.
March 18 (Bloomberg) — U.S. regulators are investigating whether traders illegally sought to force Bear Stearns Cos. shares into a tailspin last week by spreading false information about the firm’s finances, two people familiar with the inquiry said.
The Securities and Exchange Commission probe is focusing on whether hedge funds or other investors bet on a drop in the company’s shares while disseminating rumors that the New York- based firm was nearing collapse, said the people, who declined to be identified because the inquiry isn’t public. The New York Stock Exchange’s regulatory arm is also involved in the investigation, the people said.
Speculation about a cash shortage spurred customers and lenders to pull money from Bear Stearns last week, driving the shares down 57 percent between March 7 and March 14. Two days later, the fifth-largest U.S. securities firm was acquired by JPMorgan Chase & Co. for $2 a share. The company’s decline coincided with a surge in investor bets that the stock price would plunge. The SEC’s probe is unusual because most of the regulator’s stock-manipulation cases focus on penny stocks.
“The commission is in uncharted territory,” said Peter Henning, a former U.S. Justice Department prosecutor who teaches at Wayne State University Law School in Detroit. “The problem will be separating out the trading from the noise in the market. There was a lot of speculation about Bear.”
Shareholder Losses
SEC spokesman John Nester and NYSE spokesman Scott Peterson declined to comment. Bear Stearns spokesman Russell Sherman didn’t return a phone call seeking comment. The SEC is seeking to question traders who profited from options or short sales, one of the people familiar with the probe said.
The case underscores regulators’ concern that malicious rumors have the potential to fuel market panic and exacerbate shareholder losses on financial stocks. Bear Stearns had more than $17 billion in cash and salable assets on March 11 when lenders and customers began removing funds, the SEC said in a March 14 statement.
Why should balance sheets matter? We have the printing-press and electronic transfers. But the next government economist that tells me “value” counts, I’m going to tell him/her to get fucked!
Sorry, but that was totally impossible for me to watch beyond the first 30 seconds….K is truly unbearable. Television is so mindless. Thank goodness it’s now so old school as well. Long live the net…at least until the corps figure out how to put a price on everything.
Government’s hapless tinkering is arguably what caused this.
When Congress increased the conforming loan limit as part of the stimulus package, it predictably blew out the agency spreads. Bear held a lot of agency paper.
The Fed’s short-term loan facility encouraged IBs to make margin calls on shaky leveraged clients like Carlyle to exchange AAA paper for treasuries. So naturally, hedge funds pulled their money.
What on earth did they expect to have happen?
Now, I’m terrified of the unforeseen consequences of allowing the broker-dealers direct access to the Fed window.
Much less the outcome of what we all know is inevitable now – when the Fed runs a coupon pass to buy AAA paper itself.
Here’s a couple funnies. Jon Stewart of the Daily Show talking about the weekend’s economy/Bear Stearns.
http://www.comedycentral.com/motherload/player.jhtml?ml_video=164178
Stephen Colbert with a slightly different take:
http://www.comedycentral.com/motherload/player.jhtml?ml_video=164056
By allowing the IB’s access to the window, the Fed effectively threw in the towel. God help us when the ‘game’ gets restarted.
It may be that there is no deleveraging, just more skin in the game!
Frankly, I would rather listen to Cramer than this strident shill………
Posted by: Gary | Mar 18, 2008 6:00:58 PM
I second that opinion, atleast Cramer does not take himself so seriously
In the midst of this “blame the Fed” game, Arthur Laffer pipes in with this quizzical comment, “[The Fed]…has not allowed the monetary base to expand…”
What’s with that? Am I misinformed, or is he?
The M2 has been increased by 6.8%, 5.8%, and 4.9% year-on-year for the last three years (in seasonally adjusted terms).
(http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt)
How is this not an adequate expansion of the monetary base? It has been well ahead of inflation…?
“Sorry, but that was totally impossible for me to watch beyond the first 30 seconds….
Amen to that.
Barry, did you feel at all blindsided by this weird take that was being *pushed* by these used-car salesmen?
Exhibit A: they make heavy use of the *logical fallacy* that if something is the law, it must be good and right–if Glass-Steagall was repealed, then obviously its underlying principle–that depository institutions, having direct access to the Fed window, should not engage in speculation with other people’s money–was flawed, so the Fed should therefore also just open its window directly to these nonbank financial institutions. Nevermind the point of view that Glass-Steagall was valuable as part of the framework for preventing this sort of nonsense and never should have been repealed! Ensuring stability of the currency is what G-S was all about! You can’t allow the Fed, which PRINTS MONEY, to hand it out at street corners like candy–just think of the consequences.
Exhibit B: Kudlow forcefully takes for granted what should be merely a *presumption* that this event, the death of Bear Stearns, is “just signalling a market bottom” “just like LTCM” and all the rest, instead of admitting what is really is–an ominous tremor in the foundations of the global dollar-based financial system, possibly heralding God-knows-what kind of chaotic world crises.
Kudlow is getting his mandate from on-high to push an agenda of dollar-destruction.
They just used you as a paper tiger Barry! You are certainly no paper tiger, but if they are arguing a position without telling you straight what it is, it is certainly difficult to respond coherently. Propaganda at its finest.
Everyone who found themselves unable to watch this video, please give it another try from a different perspective–see if you can decipher what these tools are really getting at: LET THE PARTY GO ON BY ANY MEANS, LET THE DOLLAR DANCE TILL IT DROPS! And anything that tries to stand in the way is WRONG and should be BANNED.
And that leaves us with a question–
Glass-Steagall was enacted to prevent what we are going through.
Yup.
Sometimes the invisible hand is a pickpocket.
Broker Dealers (gamblers) now have access to the Fed; that means the Fed has become lender of last resort to the shadow banking system.
Beware the Ides of March.
Since there were other investment banks that didn’t fail, how can someone blame it on the rules in place?
Kudlow was very angry about what happened to Bear Stearns. He used to work at Bear Stearns. I wonder if he still owns some stock.
I think that Kudlow has raised a very good question. Why was BSC sacrificed and sold to J.P. Morgan for a song?
Did you read WSJ article today? JPM was ready to pay “lower double digits” for BSC, but because there were no other bidders and the Fed was pressuring BSC to make this deal before the markets open in Asia (Sunday night) JPM got BSC for a song. The shareholders can keep blocking the deal at least for a year, and then you might get litigations for another 3-5 years. If the credit markets rebound within a year, Bear Stearns might be resurrected.
Kudlow was very angry about what happened to Bear Stearns. He used to work at Bear Stearns. I wonder if he still owns some stock.
Posted by: GerryL | Mar 18, 2008 10:30:45 PM
Probably, and too bad Bear Stearns wasn’t
a gold company with hard assets instead of
financial derivitaves created by PHD math
wizes.
This rant by Nouriel Roubini is not to be missed:
“The response of the Fed to this run has been radical and in the form of the extension of the lender of last resort support to non bank financial institutions. Specifically, the new $200 bn term facility allows primary dealers – many of which are non banks – to swap their toxic mortgage backed securities for US Treasuries; second, the Fed provided emergency support to Bear Stearns and following the purchase of Bear Stearns by JPMorgan, is now providing a $30 bn plus support to JPMorgan to help the rescue of Bear Stearns; finally, now the Fed is allowing primary dealers to access the Fed discount window at the same terms as banks.
This is the most radical change and expansions of Fed powers and functions since the Great Depression: essentially the Fed now can lend unlimited amounts to non bank highly leveraged institutions that it does not regulate. The Fed is treating this run on the shadow financial system as a liquidity run but the Fed has no idea of whether such institutions are insolvent. As JPMorgan paid only about $200 million for Bear Stearns – and only after the Fed promised a $30 billlion loan – this was a clear case where this non bank financial institution was insolvent.
The Fed has no idea of which other primary dealers may be insolvent as it does not supervise and regulate those primary dealers that are not banks. But it is treating this crisis – the most severe financial crisis in the US since the Great Depression – as if it was purely a liquidity crisis. By lending massive amounts to potentially insolvent institutions that it does not supervise or regulate and that may be insolvent the Fed is taking serious financial risks and seriously exacerbate moral hazard distortions. Here you have highly leveraged non bank financial institutions that made reckless investments and lending, had extremely poor risk management and altogether disregarded liquidity risks; some may be insolvent but now the Fed is providing them with a blank check for unlimited amounts. This is a most radical action and a signal of how severe the crisis of the banking system and non-bank shadow financial system is. This is the worst US financial crisis since the Great Depression and the Fed is treating it as if it was only a liquidity crisis. But this is not just a liquidity crisis; it is rather a credit and insolvency crisis. And it is not the job of the Fed to bail out insolvent non bank financial institutions. If a bail out should occur this is a fiscal policy action that should be decided by Congress after the relevant equity holders have been wiped out and senior management fired without golden parachutes and huge severance packages.”
The Fed is now the world’s largest hedge fund – with unlimited capital if needed.
Concur with Ross above. If the Discount Window policy were to have changed with the repeal of Glass Steagel, I don’t think the repeal would have made it through Congress.
We’re going to lend to them and protect them, shouldn’t they be regulated?
http://tinyurl.com/2o7dbm
I laughed out loud at the thought that the Fed, in hopes that Bear Stearns gets in trouble at some unspecified time in the future, waited years to give the IB’s the ability to borrow from the discount window. Talk about your deep conspiracy theory.
A little off-topic, but still instructive: a link to a Kudlow vs. Krugman on Hardball in August 2005 on the housing boom/bubble.
Kudlow: “This thing is one of the best things that could happen to this country.”
http://www.pkarchive.org/economy/MSNBCHardball080905.html
Why is he screaming at the camera? Is all American television like this? I couldn’t watch more than a minute, way too annoying.
It’s Glass-Steagall.
Try saying this three times quickly…
http://www.youtube.com/watch?v=IQR–GFNPQo&feature=related
What an utterly obnoxious son-of-a-bitch. Why did you even waste your time on that, Barry? The bastard wouldn’t even let you talk.
This little video gives me the creeps.
http://www.youtube.com/watch?v=pGlmidTTIKg&feature=related
B.B. is asked here why he is pursuing a policy of devaluing the dollar. His answer is that the law mandates that he pursue price stability! In purely logical terms this reduces to: “Why do you do X?” “Because I am supposed to do the opposite of X.”
Even worse, he then says he measures price stability in terms of the CPI! So in other words, his mandate is simply to control the CPI–he can do whatever he wants with regard to actual prices, as long as he corrects for it by changing the definition of CPI.
The interrogator insightfully points out the logical fallacy already inherent in the very use of the word “price”–by talking about “price” one incorrectly regards the dollar-value of a good as intrinsic to the good, rather than as having anything to do with the relative quantities of the good and the dollars. The dollars are themselves a SORT OF GOOD– and this subtle point is swept under the rug by using words like “price” and also especially “buy” and “sell”. This simple linguistic trick is exactly the mechanism by which the public today is totally fooled and brainwashed about the nature of currency. “Everything has its price”–yeah right!
So after this inspired attack on the very roots of the banking industry, BB ends his own stunning performance by falling back once again on the fallacious statement “if oil prices continue to rise, we will have a hard time controlling inflation”–when this sort of linguistic abuse had just been attacked by his interviewer. But this point receives no response from B.B.
I have never made so much easy money so fast recently just by seeing my house price drop 1 year ago. After it sold and saw the huge credit card dept with discussions on growing mortgage issues I started waiting for it to began going up and currently made over 40,000 when I buy my next home. I even think about how guilty I will feel when I do buy my home from some unlucky person.