Wednesday, August 22, 2007

Cold Turkey

Enough with all the moaning and groaning over a normal stock market correction. Volatility returns and the game changes but apparently, like an addict, certain market participants insist on their liquidity fix.

The Fed does not need to cut anything beyond what it has done thus far. Frankly, the one thing that should be cut is the crap from the East Hampton crowd. “Oh, look at the poor homeowner. He/she needs help”, wails the hedge fund/private equity manager, crocodile tears streaming down his face as he contemplates his next plea for a government bailout (that’s what a rate cut amounts to) from the veranda of his mansion overlooking the Atlantic. ("Jeeves, get me another martini.")

What is needed is more clarity as to who owes what to whom. Considering the $400 trillion in OTC credit derivatives (that’s 8 times the world GDP), getting to know what we don’t know would certainly help. Hopefully, the Fed can achieve some of this through its discount window initiative.

What is not needed is to listen to the cries for what is in effect a government bailout for those who created the mess in the first place. Looks like free market ideology applies only when times are good.

Keep serving the cold turkey, Ben.


Anonymous said...

Well said. Just weeks ago we were talking about the world economy awash in liquidity, now some are crying because they've been "cut off". This is a confidence problem that will correct with time, and we'll have more stable financial markets due to the risk reassessment.

Vinny Catalano, CFA said...

I believe that the world is still awash in liquidity. But when a fair amount of that liquidity is based upon bogus valuation methods such as mark to model or mark to ratings and when you have the psychological seizing up of the credit markets, then a temporary credit squeeze is definitely underway.

Completely agree re the confidence factor.