Tuesday, 18 March 2008

Irrational Optimism

Wow. The markets are flying high on the rocket fuel of Ben's magical printing press. Retail lending rates even appear to be stabilizing, perhaps even falling. The Fed's rate cut wasn't even as big as most traders hoped for or expected - a 'mere' 3/4 percent rather than the full percent that was the consensus hope.

While I was in my whiskey sour (actually bourbon sour) haze last evening, I made the mistake of watching 'Kudlow and Company' for a while. Larry was browbeating his one non-sycophantic guest for not out and out saying that the Fed was 'criminal' (his word) for not having opened the discount window to investment banks immediately after the repeal of Glass-Steagal in 1998 or 1999. I don't disagree with his premise. The issue I have is that the CEO of Bear Stearns was playing in a BRIDGE TOURNAMENT somewhere in the Caribbean or something and got back Saturday. You think while the shit was hitting the fan that hard, the guy could have put down his cards and said "excuse me, I have to go see if I can save my company and its 14,000 employees. Deal me out this hand." Second, those 14,000 employees are absolutely world famous for being risk-loving cowboys. Live by the sword... Third, Bear Stearns was telling anyone who would listen that they were in FINE shape as recently as Friday. So assuming the CEO was at his desk rather than playing bridge (or the fiddle) as his empire burned, would he have even availed himself of the discount window? I'm guessing no. So the Fed didn't bury Bear Stearns, Bear Stearns buried Bear Stearns.

So what's next? Certainly the dollar will go to new lows. Inflation? It's gotta take off like Petacchi on a full inhaler of Salbutamol, right? How could it not?

It's good that people will be able to get loans and credit, and we won't have to regress to using trading beads or anything like that. I like my ATM card, you know? But I think there's still a lot of fundamental stench in our system, and cleaning up the detritus of overly deregulated markets with the public's funds is bad for business. There's a thought that Bear was a sacrificial lamb in this whole thing. I don't know.

I'll tell you one thing - I had a pretty good hangover working this morning. Nearly 10 hours of blissful sleep induced by the sweet nectar of bourbon, citrus and sugar. If this bike racing thing doesn't work out I'm going to be a full time alcoholic.

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