The Hand Is Quicker Than the Eye: Mortgage Bailout Begins

The Hand Is Quicker Than the Eye: Mortgage Bailout Begins

Fri, 08/31/2007 - 16:39 — moneysage

We now stand officially advised that the first installment of the mortgage bailout is underway। There will be many, many more installments in coming months, producing the largest cumulative government rescue operation in history. As we suggested in a longer analysis several weeks ago ("The Sub-Prime Crisis: Made in Washington"), such a bailout is both essential and inevitable. We expect that each step along the bailout road will be marked by vigorous Administration and FED assertions that this IS NOT A BAILOUT. But hey, that's politics. The ideology of the untrammelled free market, to which both the Administration and Dr. Bernanke subscribe, requires disavowal in proportion to the degree of capitulation.

Stalin once said that when ideology is in conflict with the facts, "change the facts।" In truth, the late tyrant did nothing of the sort. He effectively discarded ideology while intensifying his murderous stranglehold on his people. Politicians are not ideologues: they follow the commands of practicality and political advantage, unless personal psychosis causes them to commit acts of madness (Nero, Caligula, Hitler).

Consequently, contrary to the bravado in both the President's statement and in repetitive FED assertions, the government WILL RESCUE the most important speculators। This category, after all, includes many of the most important BANKS in the U.S. and Europe. Their well-being is indispensable to the functioning of the economy. The vast debt overhang of consumer America precludes any but the shortest, most minimal interruption of the flow of credit to the consumer underpinning of the American economy.

It may be that some of the anti-inflation ideologues at the FED do not see this, do not accept this, do not like this। Nonetheless, like the Spanish Inquisition, they will ultimately bow to the king's will. The "independence" of the FED is greatly exaggerated. In view of the central bank's catastrophic performance in the 1930s and the 1970s, their "independence" is conditional upon behavior which is at least minimally satisfactory to the political powers that be of BOTH PARTIES. We have already seen prominent congressional Democrats publicly threaten to take away some of the FED's regulatory powers if the FED continues to be DELINQUENT in their proper exercise re. mortgage lending. We note that Chairman Bernanke immediately and publicly fell into line.

And so it will be with interest rates. Ready or not, THE FLOOD OF MONEY IS COMING.

The Tense in Financial Journalism

The Tense in Financial Journalism

Fri, 08/31/2007 - 13:46 — moneysage

It has long been our view that investors who rely upon reports and analyses by financial journalists often wind up in a cul-de-sac -- or worse। There are, of course, some prescient financial journalists who are smart, analytical, and independent-minded. Unfortunately, they seem to constitute a distinct minority.

One of the principal problems of financial journalism, as we see it, is the verb "tense।" If you replace the word "will" with the word "has" you will frequently find enlightenment, we think. Many writers seem to take a past trend and project it into the future. This is why at the top of a bull market, we learn that the market "will" rise. What we are actually receiving is an historical narrative (the marked HAS risen -- long enough, and far enough, to finally attract the writer's attention and gain his conversion to the bull point of view). This historical narrative is all-too-often presented in the guise of a future "prediction."

There is nothing sinister in this। It is simply that by the time awareness of a trend makes its way down the analytical food chain to the journalist, it is well-developed. All too often, the trend has already crested and turned down. We have seen this again and again. With regard to residential real estate, for example, all we read about at the top of the market, and even after it had peaked and turned down, was rising house prices, flipping, condo conversions, etc etc, and all the money TO BE MADE thereby (translation: Already HAS been made, NOW about to be LOST).

Another problem appears to be the dependence of many financial writers on their "sources।" These sources may sometimes have their own agenda: such as bulling an asset class in which they have large paper profits, and now wish to unload in anticipation of the end of the bull run. There can be other advantageous uses to which "sources" can put those they may regard as their journalistic "assets."

There is also the self-protective impulse many writers may feel. There is safety in numbers; if they are wrong along with the herd of journalists, no ill will befall them. If they are wrong alone, they are in jeopardy.
As an antidote, when considering journalistic input the investor may find it advantageous to use the "tense substitution" we have alluded to. A more frankly contrarian approach could also be considered: assume that the "trend" glowingly described in the story may be close to the crest, or may have already topped out and begun its southerly move.