Socialism for the Rich
March 19th, 2008Thanks to Christoph for this story. Jim Rogers has been on the wires lambasting the Fed for pumping out cash left, right and center. He has called the bailing out of investment bank Bear Stearns as “socialism for the rich“.
I like that. He calls for the Fed to be abolished. Now we’re talking.
Let’s face it, market rally or not, the $ is still in serious trouble and banks are still going to be under severe pressure. Watch for the lawsuits to come flying out now. Charles Schwab is being sued for “untrue” statements regarding the diversification of certain funds. We are going to see this more and more as people start to take a closer look at the way investment products have been sold.
You could say this is an outcome of an asset bubble bursting. People rush round looking for someone to blame when they lose all their money. “Caveat Emptor” is conveniently forgotten and another investment generation is left to learn the lessons that previous ones failed to pass on or more likely were ignored in their attempt to do so.
How do people feel out there? I know 95% of my readers are from the US so maybe you have had some first hand experience you would like to share.
Tags: credit crunch, federal reserve, financial crisis, intervention, markets
March 21st, 2008 at 12:18 am
I don’t get what the big deal over this particular situation is as if its somehow a unique circumstance.
This scenario is just a repeat of events that have occured since Nixon closed the “gold window” in 1971 and cancelled the Bretton Woods system.
For example, the Baker Plan in response to the Latin American currency crisises, the bailout of the companies responsible for the US Savings and Loans crisis, the bailout of Long Term Capital Management, the IMF “interventions” during the Asian Crisis that bailed out the investment banks rather than the populace of the affected countries, etc.
Its a natural consequence of allowing virtually unlimited expansion of credit through the fiat-based fractional reserve banking system and unrestrained capital flows to flood through the floating currency exchange markets.
If you think the recent routs on Wall Street are bad, just wait until the Fed hikes interest rates “to kill inflation” and the bottom falls out of the stockmarket and commodities markets.
March 21st, 2008 at 12:34 am
I think the difference is the increased systemic risk to the whole system. Long Term wouldn’t really have affected the man in the street as much but this crisis will. As you say interest rates are already rising in the retail markets as a result of credit crunchiness.
Gold is already off $125 from its highs in 2 days but again that affects only the speculative element. What we will continue to see is a de-leveraging of positions in every market which could go on for some time.
March 21st, 2008 at 6:09 am
Hi Raf,
I do recognise the seriousness of this situation, but what I was pointing out is that people appear to be so up in arms about this bailout of Bear Stearns when as I pointed out its not exactly an isolated incident.
I guess people’s ignorance of history is exactly why situations like this can arise in the first place. Of course the first thing people do is to demand Big Government to protect them, when its government action that largely contributed to the problem in the first place. Why oh why can’t people take responsibility for their own actions? I guess its just soo easy to blame someone else.
“The new moral hazard in financial markets has its source in what can be best described as the Greenspan Doctrine. The doctrine was clearly enunciated by Alan Greenspan in his December 19, 2002 speech. Mr. Greenspan argued that asset bubbles cannot be detected and monetary policy ought not to in any case be used to offset them. The collapse of bubbles can be detected, however, and monetary policy ought to be used to offset the fallout.
Two months earlier, Mr. Bernanke endorsed the Greenspan Doctrine, arguing against the use of monetary policy to prevent asset bubbles: “First, the Fed cannot reliably identify bubbles in asset prices. Second, even if it could identify bubbles, monetary policy is far too blunt a tool for effective use against them.” Since Mr. Bernanke is now Fed chairman, it is reasonable for market participants to assume that the Greenspan Doctrine still governs current Fed policy.”
http://www.cato.org/pub_display.php?pub_id=8638