Looking Round The Corner

First of all the inverted Treasury yield curve righted itself so that now short-term Treasury bills yield less than medium term notes and long-term bonds. Then the Libor yield curve righted itself. Last Thursday the Dow and the NASDAQ broke above their 65 day moving averages.

These portents have nothing in common with the auguries of Roman times or Chinese divination practices.

Then there is the all-important lagging indicator. Democratic politicians and the mainstream media are all over the mortgage crisis. Why, Hillary Clinton even contributed an addition to her series of award-winning “3:00 am Call” TV ads.

It just shows how ill-suited she is to be president. Everyone knows that financial crises are not handled at 3:00 am. They are handled over the weekend.

It was over a weekend in mid March that Drill Instructors Ben Bernanke and Hank Paulson plunked the stockholders of investment bank Bear Stearns down into the barber chair and proceeded to give the young recruits a haircut that will be remembered as long as there is a Wall Street.

In the future every over-leveraged Wall Streeter tempted to put off recapitalizing because he is too cheap to dilute the stock will think back to the Bear Stearns weekend when the Fed and the Treasury stripped Bear Stearns of its equity and more or less gave the firm to JP Morgan Chase.

Then and only then they opened the Fed’s discount window to investment banks.

Notice what happened next. When the Swiss bank UBS announced $37.7 billion in writedowns on April 1, 2008 it simultaneously assured the world that it was seeking $16 billion in capital to improve its capital ratio.

Here’s a nickel that says that all over the world bankers are busily lining up capital injections to improve their capital ratio and save their long golden hair.

Let’s make a radical prediction. Let’s say that the worst is over. Pretty soon it will be time to start handing out the medals and the gold stars.

Why don’t we start with the man who appointed Ben Bernanke as Chairman of the Federal Reserve Board and Hank Peterson to be Secretary of the Treasury?

President Bush seems to be making a habit of sticking with questionable appointments and then finally, at the last minute, getting the right guy in there to turn things around.

President Bush could have dumped the late, unlamented Chairman of the Federal Reserve Board, Alan Greenspan, in 2004 instead of nominating him for a fifth term. For who could have forgetten the agonizing months in 2001, when the Fed, way behind the curve, slowly lowered its fed funds rate from a peak of 6.5 percent as late as January 2001 down to an eventual 1.00 percent—or the still more agonizingly slow step-by-step increases by 0.25 points per month, starting in mid 2004, taking two years to get up to 5.25 percent, finally, in the summer of 2006.

He could have saved us from two unimpressive Treasury Secretaries, Paul H. O’Neill and John W. Snow. What a relief it was when President Bush nominated Hank Paulson, veteran CEO of Goldman Sachs, to be Secretary of the Treasury on May 30, 2006, at a time when it was already clear that trouble was brewing on the mortgage front.

The real surprise is Fed Chairman Ben Bernanke. The surprises started with his nomination on October 24, 2005. Who would have thought that this mild-mannered economist would sail through his nomination process to be sworn in on February 1, 2006 just in time to deal with the mortgage mess? Who would think that an academic and expert on the Great Depression would turn out to be a decisive leader willing to take bold action to preserve liquidity in the financial system during the difficult months that began in August 8, 2007 when the Fed and the European Central Bank first injected emergency liquidity into the money market to prevent a meltdown?

In the next few months we will get to see what’s around the corner, and whether the haircut administered on the weekend of March 15-16, 2008 by ruthless DI Bernanke to Bear Stearns got rid of the economic lice.

The real measure of Ben Bernanke will be if he has the cojones to raise interest rates as soon as the present crisis has passed. The problem he’ll have is that Democrats will be running around talking about the “worst economy in the last 50 years” just as they were in 1992 a full year after the end of the mild recession from July 1990 to March 1991.

There is no looking around the corner on that one.

Christopher Chantrill blogs at americanmanifestobook.blogspot.com.

Buy his Road to the Middle Class.

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Chappies

“But I saw a man yesterday who knows a fellow who had it from a chappie that said that Urquhart had been dipping himself a bit recklessly off the deep end.” —Freddy Arbuthnot
Dorothy L. Sayers, Strong Poison

Hugo on Genius

“Tear down theory, poetic systems... No more rules, no more models... Genius conjures up rather than learns... ” —Victor Hugo
César Graña, Bohemian versus Bourgeois

Education

“We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.”
E. G. West, Education and the State

Faith & Purpose

“When we began first to preach these things, the people appeared as awakened from the sleep of ages—they seemed to see for the first time that they were responsible beings...”
Finke, Stark, The Churching of America, 1776-1990

Conversion

“When we received Christ,” Phil added, “all of a sudden we now had a rule book to go by, and when we had problems the preacher was right there to give us the answers.”
James M. Ault, Jr., Spirit and Flesh

Postmodernism

A writer who says that there are no truths, or that all truth is ’merely relative’, is asking you not to believe him. So don’t.
Roger Scruton, Modern Philosophy

Faith and Politics

As far as the Catholic Church is concerned, the principal focus of her interventions in the public arena is the protection and promotion of the dignity of the person, and she is thereby consciously drawing particular attention to principles which are not negotiable... [1.] protection of life in all its stages, from the first moment of conception until natural death; [2.] recognition and promotion of the natural structure of the family... [3.] the protection of the right of parents to educate their children.
Pope Benedict XVI, Speech to European Peoples Party, 2006

China and Christianity

At first, we thought [the power of the West] was because you had more powerful guns than we had. Then we thought it was because you had the best political system. Next we focused on your economic system. But in the past twenty years, we have realized that the heart of your culture is your religion: Christianity.
David Aikman, Jesus in Beijing

Religion, Property, and Family

But the only religions that have survived are those which support property and the family. Thus the outlook for communism, which is both anti-property and anti-family, (and also anti-religion), is not promising.
F.A. Hayek, The Fatal Conceit

Conservatism

Conservatism is the philosophy of society. Its ethic is fraternity and its characteristic is authority — the non-coercive social persuasion which operates in a family or a community. It says ‘we should...’.
Danny Kruger, On Fraternity

US Life in 1842

Families helped each other putting up homes and barns. Together, they built churches, schools, and common civic buildings. They collaborated to build roads and bridges. They took pride in being free persons, independent, and self-reliant; but the texture of their lives was cooperative and fraternal.
Michael Novak, The Spirit of Democratic Capitalism

Society and State

For [the left] there is only the state and the individual, nothing in between. No family to rely on, no friend to depend on, no community to call on. No neighbourhood to grow in, no faith to share in, no charities to work in. No-one but the Minister, nowhere but Whitehall, no such thing as society - just them, and their laws, and their rules, and their arrogance.
David Cameron, Conference Speech 2008

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