• Login:
Welcome, Register Here
follow PropertyTalk on facebook follow PropertyTalk on twitter Newsletter follow PropertyTalk on LinkedIn follow PropertyTalk on facebook
Results 1 to 1 of 1
  1. #1
    Join Date
    Jul 2003
    Location
    Kapiti in New Zealand
    Posts
    4,031

    Default Geithner Admits: Easy money did us in

    In an interview with Charlie Rose on Tuesday, Tim Geithner admitted the bubble was caused by Greenspan’s easy money policy. Unfortunately, Charlie didn’t ask the obvious follow-up: “why will this time be different? Why will Bernanke’s easy money policy lead to different results?” Here was the crucial exchange:

    Rose: “Looking back, what are the mistakes and what should you have done more of? Where were your instincts right, but you didn’t go far enough?”

    Geithner: “…I would say there were three types of broad errors of policy and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return. That was just overwhelmingly powerful.”

    Rose: “It was too easy.”

    Geithner: “It was too easy, yes….
    What makes Geithner’s admission so frustrating is that the government is engaged in the same disastrous policy today, to fight the same bogeyman: deflation.

    As Geithner makes plain, a huge side effect was that investors seeking meaningful returns inflated the bubble taking flyers on overpriced, risky securities. Toxic structured products are the obvious example. Credit rating agencies get lots of blame as enablers, rating trash “AAA.” But fixed-income investors wanted an excuse to invest in riskier stuff that carried slightly higher yields; hell, artificially low interest rates meant many needed an excuse.*

    Truly low risk securities like Treasurys and money market instruments were yielding so little, they were of no use to portfolio managers trying to match assets with liabilities. That’s a simple concept, really. Pension fund managers, for instance, rely on actuarial estimates to determine their future liabilities. What the plan will have to pay out to retirees at a particular future date. So they have to invest in such a way that plan assets will grow to meet plan liabilities. Stocks are typically too risky, so they rely on high quality “AAA” fixed-income securities that offer modest rates of return while guaranteeing principal.

    But what happens when low-risk fixed-income securities yield 0% or close to that? Asset managers are more or less forced to seek higher interest rates through riskier investments.

    So what are the results of our latest experiment with rock-bottom rates? Investors are piling back into risky investments across the board. Taking just one example, FT noted this week that high-yield debt is skyrocketing. The “experts” cited in the article claim this is proof that we’ve come through the worst of the recession. In their brains, markets still operate efficiently, so the running bulls must reflect improving fundamentals.

    First of all, efficient market theory doesn’t apply to asset markets the way it applies to goods markets. But even if it did, how can folks pretend that any market with fixed prices is operating efficiently? With their stranglehold on interest rates via open market ops, central banks everywhere are engaged in a massive price fixing scheme that distorts investor incentives across all asset markets.

    Geithner admits such a policy was a disaster before, that the “overwhelmingly powerful” force of low rates inflated the bubble. So how can he/Bernanke justify the same approach this time ’round? No doubt they’d argue they’ve no other choice: a ponzi system “relying on credit” needs credit to flow or else it will collapse. It doesn’t occur to these guys that the system itself is flawed, that we need a gut renovation, not just another layer of paint.

    No doubt de-leveraging would be quite violent if the Fed left rates higher. But de-leveraging is the only solution to the crisis. God forbid Bernanke’s easy money policy acutally “works;” God forbid he “rescues” the economy by reflating the credit bubble. De-leveraging is coming, whether we want it to or not. Better we rip the band-aid off quickly…

    Source: http://optionarmageddon.ml-implode.c...eithner-admit/

    Cheers

    Marc
    Free business resources - www.BusinessBlogsHub.com


 

Thread Information

Users Browsing this Thread

There are currently 1 users browsing this thread. (0 members and 1 guests)

Similar Threads

  1. Replies: 2
    Last Post: 29-07-2017, 12:35 PM
  2. Easy money, easy debt
    By essence in forum Finance, legal and tax (NZ)
    Replies: 33
    Last Post: 01-09-2014, 10:58 PM
  3. Dumb-arse admits he got it wrong
    By Bob Kane in forum Coffee Lounge
    Replies: 8
    Last Post: 22-01-2013, 09:09 PM
  4. Replies: 0
    Last Post: 30-03-2009, 12:47 PM
  5. Geithner & Bernanke want more power
    By Marc in forum Videos
    Replies: 0
    Last Post: 25-03-2009, 09:05 AM
  6. Easy money: Global liquidity and its impact on New Zealand
    By Walter in forum Finance, legal and tax (NZ)
    Replies: 0
    Last Post: 27-03-2007, 12:18 PM
  7. ...it sounds so easy to make money!
    By Walter in forum General (NZ)
    Replies: 6
    Last Post: 07-04-2006, 09:02 AM
  8. Worker admits credit card cloning
    By Marc in forum General (NZ)
    Replies: 8
    Last Post: 25-04-2005, 01:00 PM
  9. bank trouble
    By sally1 in forum Property Investment (NZ)
    Replies: 6
    Last Post: 02-11-2003, 01:16 PM

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •