Kudos to Bernanke and Paulson during this crisis
While I know all you shorts out there will hate this blog, and many of you shorts are just playing a CAPS GAME anyway, I really tip my hat off to Bernanke and Paulson for doing whatever is necessary to prevent a total collapse of our financial system.
I read enough about just let the market handle it. And had they stayed on the side line, like that poor excuse of a SEC commissioner Cox did, you would probably have total chaos by now. Sure some of you guys, like Alstry, would love it, but when you start seeing REAL people being destroyed, you might feel a bit more humane and feel otherwise.
I've blogged replies before stating what I think was the cause of all this. To repeat in a nutshell, it was greed on the part of the funding companies and brokerage houses, who just ponzi schemed the appraisals and credit applications to churn those fees. And because of their 106% financing, no money down deals, the banks had little choice but to follow in order to compete. I submit 2005 was the top, it was the top for several reasons. Mainly allowing NON banks to start issuing residential mortgages and the change in leverage accounting allowed by the SEC. Yes, good old Mr. Cox who changed the restricted 15-1 leverage rule to basically double if not higher. So the funding companies and brokerage houses and banks continued to churn, and had to make the mortgage products even more creative because even the reckless ones started realizing that the customer's wage was just not keeping up with the artificial inflating of prices.
And when those teaser adjustables started to adjust, and people simply didn't have the wage income to meet the payments, the ponzi scheme started to collapse. And then came the shorters. Like piranahs they mercilessly banged down companies. Since they never had to actually borrow the stocks to short (since Mr. Cox didn't care). They could just wolfpack click sell and enter and watch the companies tank. But hey SEC got Martha Stewart at least.
At this point we are basically dealing with an inflated housing crisis that will take time to cure. THAT is the crux of this whole mess. And with the mark-to-market accounting rule you have a continuing downward spiral. Bernanke and Paulson are simply trying to stop that spiral.
I've said this before, it is going to take time to get through this. Foreclosures take years to wind through. I have been predicting 2010 as the uptick year. This new intervention being discussed actually might shorten that period. I don't care about a "moral hazard" argument. I don't want massive breadlines. I don't want to see those 80 year olds being totally disoriented, confused, scared, starving and helpless because some are trying to make an academic argument. Action is required to get us through this, and so far Bernanke and Paulson are trying as best as they think will deal with this mess.
Will they succeed? Only time will tell, but at least THEY are trying. And I hope they continue to do so.