Friday, September 21, 2007

The Good, the Bad and the Ugly, -- Bernanke Cites Housing Culprit

Amid storms of criticism, Bernanke and various officials voted for the rate cut blunder are all out in PR. And the excuses only show that they still don't get it and the way they paint the picture is more of disingenuousness.

The red herring throw out by Bernanke is "I think the primary factor leading to increases in house prices -- not only in the U.S., but in many countries around the world -- was the generally low level of [inflation-adjusted] long-term interest rates in global capital markets." By wiggling so hard to disassociate Feds from housing bubble, Bernanke & Co further couldn't then justify their rate cut as now that he admitted that their rate cuts do not have big effect on housing market. So what are these guys talking? If they saying now that they are not trying to help housing market, the only ones they are bailing out with taxpayers' money is market speculators.

And all they said are obviously wrong when they are scrambling to find things to damp criticism. And people are dumping Treasury and Dollar as far as they after evaluating their poor decisions.

Firstly, the boom and bust are not because people taking out traditional 30-year loan. It's the adjustable rate mortgage (ARM) that's roiling the market. And the Feds rate has a huge impact on short term rate. The housing bubble is no different from the tech bubble burst in 2000. A lot of people were buying house just to flip.

Secondly, the effect of keeping short-term interest rate too low for too long just force investors to go out of their ways to search a little more return to fend off looming inflations (Dollar is falling under the weight of deficits and crude price is making new highs every quarter). End up they bought all the risky asset to get another extra 50 to 100 basis points of return. It's not only bubble in housing, --junk bonds, commodities, overseas and emerging market are also in the great ride.

How lame are our Feds in their excuses! Interest rate cut can be as easily abused as crack cocaine and we have a ever drug-addict economy. By being so obsessively focused on short term market results, the Feds are the biggest speculators as of today on their march towards a pain-free economy. Run for cover, man!

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