NYT Fed Quote

For the first time ever, I am on the front page of Sunday New York Times (and above the fold). The really cool part is I didn’t kill anybody, steal $400 million dollars, or lose billions as a rogue trader.

"In the last seven months, policy makers have cut interest rates, injected money into the banking system and approved a fiscal stimulus package in an effort to keep the economy from slipping into a recession. Often, the moves seemed to work at first, only to be overtaken by more bad news.

The failure of any of the usual fiscal and monetary policy tools so far raises questions about what the Federal Reserve and federal government can do in the near term to counter the forces that have battered housing prices and pushed down the stock market and are now causing a hiring slowdown.

“There are times when there is only so much the Fed can do,” said Barry Ritholtz, chief executive of FusionIQ, an investment firm in New York. “It can smooth out the business cycle a little bit, but last I checked, we haven’t done away with the business cycle.”

One of the main problems now is a deepening crisis of confidence that is compounding the ill effects from the housing downturn. As lenders and businesses become more cautious about whom they lend to and hire, they are slowing an already weakened economy.

If the housing boom was a manifestation of irrational exuberance, some say it has swung too far in the other direction, to irrational despondency.

“Banks went from giving money away like drunken sailors to not lending to the most credit-worthy borrowers,” Mr. Ritholtz, who writes the popular economics blog The Big Picture, said.

How wild is that?

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Don’t Fight the Fed?

09econ350

graphic courtesy NYT

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Source:
Downturn Tests the Fed’s Ability to Avert a Crisis
VIKAS BAJAJ
NYT, March 9, 2008
http://www.nytimes.com/2008/03/09/business/09econ.html

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What's been said:

Discussions found on the web:
  1. Matt commented on Mar 9

    Congrats! Very nicely done

  2. Jens commented on Mar 9

    Yupp, cool stuff.

    Looking at the graphic, I really start wondering whether the Fed knows what it is doing. I mean, sorry, but if you have to cut the interest rate by from 4.75% to 3% in less than six months, it implies that you either got ot wrong in the first place, or it is now in the wrong place or both.

    I guess the Fed really believes they can stop a recession from taking place. You are right, maybe they can lessen the effect somewhat, but they surely won’t be able to stop it. The graph shows that very clearly.

  3. Cleargulf commented on Mar 9

    Congratulations.

    “Fame is fleeting, obscurity is forever.”
    N. B.

  4. Ross commented on Mar 9

    You get any more popular and you’ll need a bodyguard. Damn groupies can be a pain.

    It got me thinking that aside from Calculated Risk, your main competition is probably that slick site, Minyanville. CR is a little narrow but the Minyans are quite eclectic.

    They have a pow wow every year in Colorado, Minyans in the mountains. What we/you need is a similar fete. Call it Ritholtzians in the Rockies. We could all meet in Aspen. The less blest of us would find great accomodations in Glenwood Springs, Carbondale and Redstone.

    Some of my girls, nee administrative assistants are want for something to do. I offer them pro bono or Sonny Bono for that matter if you would like to delve into it further.

    Anyway congrats on the quotes. May the Fusion always be with you.

  5. wabrew commented on Mar 9

    The really cool part is I didn’t kill anybody, steal $400 million dollars, or lose billions as a rogue trader

    You crack me up. :-)

    Congrats on the well deserved quote.

  6. freejack commented on Mar 9

    does this make barry a contrary indicator?

  7. Lars commented on Mar 9

    Way to go Barry! More people are listening, and maybe starting to get it.

  8. ECONOMISTA NON GRATA commented on Mar 9

    That’s great Barry…. However, we don’t want to hear about you and Brittney Spears tearing up the town in the wee hours.

    Congratulations, you’ve been right on the money for a long time and it’s about time that you get some mainstream recognition.

    Again, Congrats!

    Econolicious

  9. farmera1 commented on Mar 9

    Well, as a lurker and learner all I’ve got to say is congrats. I read your stuff daily and it is a very good source.

    The front page syndrome as a contrary indicator is powerful. So be careful. Don’t forget the little people.

  10. farmera1 commented on Mar 9

    Well, as a lurker and learner all I’ve got to say is congrats. I read your stuff daily and it is a very good source.

    The front page syndrome as a contrary indicator is powerful. So be careful. Don’t forget the little people.

  11. zell commented on Mar 9

    Well deserved recognition. Congratulations!

  12. Winston Munn commented on Mar 9

    You’re on a roll, Barry. What’s next, the Dali and total consciousness?

  13. Max commented on Mar 9

    It’s about time…you deserve the recognition.

    (please don’t become a douchebag)

  14. cinefoz commented on Mar 9

    It’s an old saying that when the NYT tells you to BUY stocks, and puts it on the front page, then it’s really a good time to think of selling, because the top is here.

    Does this mean they have it wrong again, but in the other direction?

    I think so!

  15. blam commented on Mar 9

    “One of the main problems now is a deepening crisis of confidence that is compounding the ill effects from the housing downturn.”

    OY! Ben Bernanke is in a tight spot. Many of us armchair QBs,complain that the Fed has compounded their problems with knee jerk rate cuts, appearing clueless and panicking as inflation soars.

    This is a crisis in the boardrooms of high finance, Washington, and high roller speculators. The problems are related to asymmetric information and the bailout proposals have done little to assuage investors that sanity is returning to the system. At some point in time, the primary purpose of the accounting statements have been corrupted from an honest representation of the state of the business for investors to a manipulated tool of grifter managements with little reflection of reality. The government has supported this transformation and continues to do so.

    Most people are aware that little of what we hear is the truth and have a sense that the grifters are trying to lay off losses on everyone else. The truth will cause a collapse of the banking industry, so we lie. The problem of overpriced home prices and related mortgage security values is persistent. Is propping up home values through inflation, mortgage bailout gimmicks, fake accounting statements, congressional interference,etc, a good idea ? Most people have a gut feeling that it is more of the same and not a good idea.

    Liquidity increases all seem to go through the grifters into the commodity futures and stock markets. I first noticed the effect when the Fed flooded the system with money after Katrina.

    The country holds it’s breath every time the GW Bush administration swings into action, with good reason. Any plan put into place under the bushkadettes is likely to be bad for the country. So we list as the music plays on.

  16. DavidB commented on Mar 9

    Congrats on making it into the ivory tower of liberalism. How’s the view from up there?

    No spitting over the edge at us also rans please.

  17. John commented on Mar 9

    And yesterday the NYT quoted Dean Baker on our lousy financial condition.

    Doug Henwood observes that reporters start calling on him when things are bad. He takes this attention as a signal that the bottom has been reached.

    Liberal/leftists usually are ignored. You know things are bad when their opinions are sought.

  18. Henkel Garcia commented on Mar 9

    Congrats,
    I think that the most realistic guys around, such as Prof. Roubini and you, are gaining the recognition you deserved.
    I’m proud to follow you since a long time ago, and glad to watch all these deveploments in the economy and financial markets with your posts guiding me…

  19. Chief Tomahawk commented on Mar 9

    Wow. Prime billing on the NYT and both The Big Picture and FusionIQ got plugs! Can’t beat that!!!!

  20. SR commented on Mar 9

    Mucho Congrats….

    So have any of the candidates (working through their back channels) approached you to be their economic adviser?

    The question breaks down to who could (or would) embrace a ‘Tough Love’ concept?
    Or is death by a thousand cuts the prefered ops mode?

    All The Best…..

  21. John Borchers commented on Mar 9

    The answer I think is rather simple. The banks don’t have the money to lend. They had to use the cash injections just to remain solvent.

    The game began as of last week. The banks all owe each other money and no one can really pay it.

    My theory was check kiting and depression as we begun this and it still is.

    Think of people flipping houses as check kiting. Anyone buying and flipping off a no money down loan clearly didn’t have the money to pay for it. They were hoping to give it to someone else.

  22. lurker commented on Mar 9

    In my mind it is a massive Global Margin Call. Leverage kills when the liquidity proves to be illusory and real estate goes down instead of up. Reading about hedge funds that bet right (against subprime) and made 90% last year having to liquidate has got me thinking the Fed may be holding the reins but the horses have run away…

  23. lurker commented on Mar 9

    sorry. congrats on the NYT dude! I was in the backpages once and they screwed up my quotes and mispelled my name. damn that reporter was an arrogant kook.

  24. Stacey Kringle commented on Mar 9

    Barry,

    Now you are on record criticizng the Fed. You are likely on an FBI “dissenters list” now. It isn’t wise to expose the fools and liars for who they are. Faith in the system is implicit to them.

  25. scorpio commented on Mar 9

    finally some news fit to print…

  26. Darin commented on Mar 9

    bleh, Barry you’re so mainstream now. =P

    haha, j/k. Gratz on above the fold, New York Times at that! Next up, one of those pointilist drawings of you in the WSJ.

  27. John F. commented on Mar 9

    Congrats! But next time, do you think you could do something a little more subversive, like recommend the abolishment of the Federal Reserve?

  28. Jurgen commented on Mar 9

    It could be a major contrarian indicator of a bottom — long time bear (the one that has been predicting Dow 6800 since the beginning of 2006) was quoted on front page of the major American ultra leftist paper. (At least in Bavaria, NYT is considered to be an ultra leftist American paper)

    Congratulations on making a history!

  29. JP commented on Mar 9

    “The really cool part is I didn’t kill anybody, steal $400 million dollars, or lose billions as a rogue trader”

    However, you are a trader. And you are definitely a rogue. So get down off of that high horse.

    (Congrats from a long time reader.)

  30. Greg0658 commented on Mar 9

    congrats … way cool

    BR – haven’t asked for advice in awhile

    when my piece of the $43mil 8×11 white paper arrives – should Check n Go pay me to hold it or should I pay them for the advance? (if they even accept it) What interest rate is fair?

  31. pj commented on Mar 9

    Way to go BR.

    From a daily reader of the BP..

    PS : Further cuts and it just keeps going down?

  32. Dave commented on Mar 9

    Congrats Barry.

  33. bullbust commented on Mar 9

    BR,
    The article by Waldman about why the Fed is doing TAF instead of Northern Rock is worth reading. TAF has the extra benefit of bailing out execs and shareholders too!

    Repurchase agreements and covert nationalization(www.interfluidity.com/posts/1204920896.shtml)

    Quote…
    I do not, by the way, object to nationalizing failing banks. There are (unfortunately) banks that are “too big to fail”, whose abrupt disappearance could cause widespread disruption and harm. These should be nationalized when they fall to the brink. But they should be nationalized overtly, their equity written to zero, and their executives shamed. That sounds harsh. It is harsh. One hates to see bad things happen to nice people, and these are mostly nice people. But running institutions with trillion-dollar balance sheets is a serious business. Accountability matters. These people were not stupid. They knew, in Chuck Prince’s now infamous words, that “when the music stops… things will be complicated.”, and they kept dancing anyway.

    But accountability has gone out of style. The Federal Reserve is injecting equity into failing banks while calling it debt. Citibank is paying 11% to Abu Dhabi for ADIA’s small preferred equity stake, while the US Fed gets under 3% now for the “collateralized 28-day loans” it makes to Citi. Pace Accrued Interest (whom I much admire), I still think this all amounts to a gigantic bail-out. And that it is a brilliantly bad idea from which financial capitalism may have a hard time recovering. Like a well-meaning surgeon slicing up arteries to salvage the appendix, the Federal Reserve is only trying to help.

  34. Joe commented on Mar 9

    Ritholtz… You realize going mainstream makes you a sellout. :)

  35. beanieville commented on Mar 9

    Why do all these bears all of a sudden presume they know more than the fed? Things always look really bad at the bottom.

  36. Winston Munn commented on Mar 9

    The TAF operations seem rather small when compared to the total mortgage problems.

    “SAN FRANCISCO (MarketWatch) – Why are interest rates on 30-year fixed-rate mortgages rising even as the Federal Reserve slashes interest rates and yields on Treasury bonds fall. The answer is that the mortgage market is short of roughly $1 trillion in capital, according to Paul Miller, an analyst at Friedman, Billings, Ramsey. The modern mortgage market works with lots of leverage, or borrowed money. Investors, including hedge funds and mortgage real estate investment trusts, buy mortgage securities, but finance a lot of their purchases with this leverage. FBR’s Miller estimates that $11 trillion of outstanding U.S. mortgage debt is supported with roughly $587 billion of equity. That’s a leverage ratio of 19 to one.”

    Who gets bailed out and who doesn’t? Does the Fed have their own “moral hazard” to deal with in choice of who survives? How can the Fed get $1 trillion dollars into the shadows, where the bigger problems lurk?

    Barry, maybe you should have been quoted in The National Inquirer, because inquiring minds want to know.

  37. AGG commented on Mar 9

    Ritholtz, the new Gold standard in reality commentary.
    Barry, you are a gentleman and a scholar.

  38. Al Czervic commented on Mar 9

    So if this covert nationalization is in the cards, then in effect, I guess you could say that the US dollar is now backed by the “full faith and credit of some broke-ass banks, bad loans, busted derivatives and a digital printing press”.

  39. Katie commented on Mar 9

    Talk about mainstream… Barry, this is Katie from CBS, how can I get ahold of you?

  40. B.B. commented on Mar 9

    BR,

    That article is on our front page also for the Denver Post. Nice job. I like the other post about this being a contrarian indicator… Maybe nice rally this week…

  41. Salma Gundi commented on Mar 9

    American History for Schools, 1776 – 2008

    2000-2008 The Second Bush Wars

    “After the declared end of the Third Gulf Oil War, Congress
    had passed the Corn Law, imposing a heavy duty on Brazilian
    ethanol distilled from sugar cane, and passing that duty on
    to American ethanol from corn, in the form of a tax subsidy.

    It was thought that if cane ethanol came in from Brazil, it
    would be sold too cheaply, then the farmers and landholders
    and agricultural corporations could not get enough for their
    corn to enable them to make a rich livelihood, and that
    marginal land would go out of cultivation.

    In this way bread and meat were made very much dearer than
    they would have been if Brazilian sugar ethanol had come in,
    and with them the price of agricultural land, driving many
    who had before made their living by the soil, into urban
    ghettos as indentured wage-slave refugees.

    Besides this, there was no care taken for the health of the
    poor, either in America itself, where 10% of the population
    were found homeless and destitute, and 18% without healthcare
    of any kind, as in the world at large, where subsidized corn
    prices soon led to mass starvation on a global scale.

    When people are dissatisfied, the first thing they think of
    usually is that if they had political power they could set
    everything right. So it was now. Large numbers of Americans
    supported what was called, “The People’s Charter”, and were
    therefore called “Populists”, or “Paulists” for a popular
    statesman of the time, who advocated against Federalism.

    At that time both the ruling gentry in WADC, the financial
    elites in NYC and the corporate merchant classes were very
    much alarmed when they heard what a large number of Paulists
    there were, and that dissatisfaction had become so widespread.
    Certainly the mass starvation around the world was not theirs
    as a concern, but rather, that Paulists would stop shopping,
    and with it, the flow of taxes and fees upward to the gentry.

    The then Republican President, His Royal Haughtiness George
    W Bush Jr, even went so far as to speak to all the plebians,
    declaring that, “…whatever ye dost, do not stop shopping!” [ital. ed.]

    The Paulists presented their Commodities Reform Bill at the
    Republican Convention that September in the State of Minnesota.
    Whereas the nomination selection process has already settled
    on another Reaganaut, Senator John McCain, the Paulist’s Reform
    Bill was rejected by the gentry in private, and never brought
    to the convention floor as a plank in the Republican platform.

    The news was received with a torrent of indignation. Meetings
    were everywhere held to expunge the Federal government laws
    and tariffs from State affairs, and so reduce the staggering
    hyper-inflation on food, energy and commodity materials so vital
    to the health and economic well-being of the nation. In some
    cities with large homeless or underclass populations, riots,
    arson and mayhem broke out. There was Corn Fever in the air!

    The two Democrat candidates standing for election at that time
    were both allied with the Neo World Order, a convenient mix of
    Free Trade and Protectionist Socialism serving the high elites.
    They would no more touch the Corn Law question, than touch the
    hands of the poor and homeless rabble wandering city streets.

    And so, through that summer, commodities inflation soared from
    13.5% (2007), to 21% in real terms by the time of the elections.
    The US dollar, having fallen in value against world currencies
    by nearly half since HRH Bosch stole office, and the price of
    oil having risen by well over truly usurous and astounding 700%,
    with it, the costs for food to eat and fuel to heat, citizenry
    began to rise up in places, demanding an end to the Corn Law.

    The soon-to-be President McCain was forced to address this issue
    as a promise in his campaign, and from there it was taken up
    by those Congressmen also standing for re-election, until by
    the time of McCain’s inauguration, every newspaper and magazine
    not controlled by Rupert Murdoch’s Clear Channel Media spoke
    of the egregious hyper-inflation in food and energy commodities.

    Senator Paul, having regained his seat in Congress, introduced
    the Kava Amendment to the Farm Bill of 2009, which declared an
    end to the Brazilian ethanol tariff and an end to corn subsidies.
    But his amendment went farther, suggesting that it is an inherent
    right of the people to be free from usury, free from speculation
    in commodities which affect human health and well-being.

    Although the combined might of the gentry and main stream media
    allied against it, Paul’s 36-hour long filibuster carried the
    day, and so made it a law that henceforth, only providers and
    processors of commodities may carry on trade in food and energy,
    and that only They, in so far as their pro-rated share of the
    overall bounty, and in so far as they were able to make delivery
    and/or take delivery, may speculate in commodity price futures,
    and that outside capital attempting to seize control of these
    producers and processors and thereby indirectly speculate in
    the commodities trade, would henceforth be taxed by 50%.

    Congress’s abolition of the Corn Law and Paul’s Kava Amendment
    had an immediate beneficial effect. The price of corn plummeted,
    and with it the price of gasoline as Brazilian ethanol flooded
    into the country. With lower grain and fuel costs, the prices of
    meat fell precipitously as well, and the prices for shipping and
    deliveries, and for housing construction materials, and for all
    matter of previously artificially-usurized goods and services.

    With the rampantly spiking Fed Rate carry trade speculation
    in commodities now averted, limited only to precious metals,
    and precluded against all types of food, energy and materials,
    the American economy began to slowly and steadily re-balance.
    That mass global starvation which had threatened to turn the
    world into a seething cauldron of violence subsided, and with
    it the violent fluctuations in prices and supplies which had
    threatened to destroy the global economy.

    The world’s leaders met at UN headquarters in New York City
    on July 4, 2010, and together declared unanimous support for the
    American ideals of Freedom and Democracy, putting an end forever
    to the Neo Reaganauts, elevating instead Paulist Republicans.

    President McCain, in the dodderage of his final years in office,
    came to be treated well by history as the Father of Global Renewal,
    in bringing an end to Usurists and Speculatists, which have come
    so very near to destroying the World, in their Greed for the Lucre.”

  42. Bob A commented on Mar 9

    I like your story Salma.

    However what we have learned from the reign of Fearless Leader is, that if it sounds too good to be true, it probably won’t happen. And that what probably will happen is worse than one might ever have imagined.

  43. Ross commented on Mar 9

    So Selma, what you are implying is that we have the 1794 whiskey rebellion in reverse?

    Let’s do the math. A tanker holds 100,000 gallons of ethanol. If not denatured, we hijack same. Deluted down to 48% with water and bottled into quarts (preferably with hermetic ball jar lids) and sold for $4 a quart we would net about $3,200,000 before sippage er slippage. Nice haul!

  44. David commented on Mar 9

    Barry,
    Congratulation, Great blog,
    I saw you on ABC News tonight, you are right, about Congress and/or the Fed; it will causes a Moral Hazard.
    Moral hazard is an economic concept, that if you protect people against an unwanted outcome, people will behave recklessly.

    Again great blog,

    “Better three hours too soon than a minute too late.”
    William Shakespeare

  45. Darkness commented on Mar 9

    >Talk about mainstream… Barry, this is Katie from CBS, how can I get ahold of you?

    Barry, you are supposed to have “people” so her “people” can call your “people”… no choice now, my man. ;-) But congrats.

    And, E, Re: Ben Stein’s column. Wild doesn’t cover it. It’s either an April 1st spoof, his meds need adjusting, or he’s died and they had to higher a ghost writer at the last minute.

  46. Darkness commented on Mar 9

    ugh, higher->hire, oh man, I need to get away from the computer, clearly.

  47. wunsacon commented on Mar 10

    Congratulations, Barry. It was just a matter of time before your sensibility popped up through the noise.

  48. Big E commented on Mar 10

    Congrats Barry! You deserve it for all your efforts here..

    Now if they’d just give you a guest column in the Business section to make it tolerable (ack). That section is just a hot mess..

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