PIVOTAL EVENTS - DECEMBER 17, 2008
The Serial Bubble Blower
Posted Dec 18, 2008
The following is part of
Pivotal Events that was published for IA subscribers Thursday,
December 11, 2008.
SIGNS OF THE TIMES:
"The whole world, including
the U S has benefited... from credit availability."
- Henry Paulson,
US Treasury Secretary, Times Online, September 18, 2007
Not all were naïve about
credit innovation. On March 30, the Calgary Herald had the
banking story of the year:
"Above the SubPrime
Fray Canadian Western Bank Outshines Tarnished Rivals"
CEO, Larry Pollack, explained
the avoidance of disastrous paper:
"We were not smart
enough to understand that stuff."
"Even the most bearish
strategist in the group recommends that investors keep a majority
of their assets, 60%, in equities."
- Wall Street Journal,
December 28, 2007
This was from a survey of strategists
at 8 major securities firms.
Wonder what the consensus was
on November 20?
* * * * *
The crash has been seen by
the establishment as severe enough to prompt the following response
from Ben Bernanke:
"No Comparison To Great
December 1, 2008
Well, the crash replicated
that of 1929 and at the equivalent stage then the establishment
"In the first place
a severe depression like that of 1920-21 is outside the range
- Harvard Economic
Society, Barron's, November 25, 1929
Obviously, when interventionist
economists are on the watch nothing can go wrong.
* * * * *
Stock Markets: The key now is to appreciate what
is working and what is not working.
Actually, the game is about
appearances. In January when bailouts began to be urgently applied
we expected that by the fall they would be eventually seen to
be not working. This was the case as the bailout crowd turned
from boasting to dismay. Even encouraging words about a lag between
policy implementation and result being in the order of two years
had little effect on margin clerks performing their tasks. With
this info, the curious might wonder why two years ago the Fed
decided to replicate the 1929, or 1873 crashes for this fall?
Just asking, but the next event
is the rebound that will, by spring, make policymakers look good
again. Underlying the indexes the action seems constructive as
advance/declines have been improving since November 20. This
is supported by money markets easing, and commodities steadying.
Actually the last few days have clocked a jump in most prices.
With some inevitable swings
stock markets should show good returns out to April. A 50 percent
retracement of the loss since August has been possible.
As we have described, the fall
sequence of panics replicated the 1929 and 1873 crashes with
As part of the tout with the
mania that blew out in 1929, John Moody published a lengthy piece
"The New Era in Wall Street". In it he condemned the
old Treasury System that had prevailed during The Great Depression
that endured from 1873 until 1895.
Moody explained: "The
old breeder of financial panics, the [Treasury System],
which had been a menace to American progress for two decades,
had now been replaced by a modern, scientific reserve system
which embodied an elastic currency and an orderly control of
the money market."
Clearly it is time for serious
researchers to conclude that the Fed has been just another destabilizing
"barbarous relic", and that the crash marks the failure
of an experiment in contrived banking systems. Identifying the
Fed as a "serial bubble blower" has been a good start.
Now it can be labeled as a breeder of financial panics.
Dec 11, 2008
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