Beware 'socialism for the rich'

Lots of good, pungent commentary in the past few days about the Fed and the mortgage crisis. Quick hits:

Jim Grant will be popular here. He lays out the anti-bailout, anti-intervention, anti-interest-rate-cut case for the New York Times: "Ben S. Bernanke ... is said to be resisting the demand for broadly lower interest rates. Maybe he is seeing the light that capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich."

The New Yorker's James Surowiecki writes that Bernanke's decision to cut the discount rate was a bad move that will only help Wall Street -- not the housing market: . "...there is something unseemly about watching the avatars of free-market capitalism rely on the government to pay for their bad bets. And there is something scary about contemplating the even bigger bets they’ll make in the future if they know that the Fed is there to bail them out."

On the other side of the argument, Jim Cramer isn't the only one begging Bernanke to wake up and do more. Mortgage broker and Inman News columnist Lou Barnes (we know, we know: some of you don't trust him) is hammering Bernanke for failing to revive the mortgage-backed securities market: "I don’t know if we need electrodes or explosives to get Mr. Bernanke into the real world, but once he’s here this job is a snap."

Barnes believes the Fed needs to restructure or re-rate all those mysterious, top-secret, and un-marketable mortgage-backed products that are stinking up the entire financial system with their un-quantifiable odors. He suggests this can easily be done by throwing its weight around on Wall Street and telling everybody to show their hand -- now: "In the old days, one of the most feared events on Wall Street was an 'information call' from the Fed," he writes.

Lastly, former Clinton Treasury Secretary Lawrence Summers weighs in, sort of, by asking a bunch of questions in this L.A. Times op-ed piece.  In keeping with Democratic Party orthodoxy, he endorses an expanded role for Fannie Mae.

Comments? Thoughts? Insights?
Photo Credit: Reuters
Hat tips: Patrick.net, kmvc

Comments

[Cal]

One of the benefits of securitization and structuring of subprime loans, outside of turning junk into gold, was that it distributed risk around the world so if it something did go wrong the whole financial system was there to absorb it. I actually do think this is a real benefit as opposed to turning junk into gold.

But any bailout would take away even that benefit coming back and concentrating risk back into one place or institution (GSE's). So the Gov't buys up all the bad debt and holds it, it then proceeds to blow up. We are all better off... how? The gov't will have to figure out a way to bail itself out.

[Todd in WeHo]

It's safe to say that nobody is 100% certain of where all this is going--including MBA grads from Harvard, Wharton, UCLA Anderson et al. I include myself in the group of people reading every major newspaper's business section and channel hopping on the TV to watch every pundit's interview in an effort to even remotely understand "new home sales" versus "existing home sales" and everthing else. What I will say for certain (and I've said it many times before) is that I am totally against the Fed bailing out greedy Wall Street investors.

As for Jim Cramer, Lou Barnes and others espousing the Fed do more, all I can say is my gut tells me this is not the way to go. I'd love to roll up my sleeves, crack open a few beers and yell "Booyah!" 'til my voice was gone but for now I'm sitting on the sidelines trying to make sense of it all.

[MyLessThanPrimeBeef]

Surowiecki is right. This will lead to bigger bets. Sure, improve your rating systems. Are you listening, S&P and Moody's? Unfortunately, humans being humans, mistakes are inevitable. So, there will be more guys and gals, ever fatter, from everywhere, including the most remote corners of the world, who nevertheless like to think of themselves as svelte 100 Meter Olympic dashers, trying to squeeze through the same tiny exit the next time.

[yourkillingmelarry]

The notes from the last FED meeting will be released on Tue. It will also include the notes for the Discount Rate cut decision. It will be interesting to see what the FED is thinking. There are some very large players facing historic losses that have alot of clout in DC. They could care care less about the future of this country, They want the FED to cut their losses and move to an island. I am sincerely concerned for the financial well being of this country right now. If those forces calling for a bailout prevail....we all lose!

[John LeFebre]

I am so sick of hearing of the proposed bailout for irresponsible home owners. When I was in college, I incurred a substantial amount of debt through negligent spending. I paid that off myself and no one bailed me out. If government officials, federal or otherwise decide to bailout these homeowners who have probably cashed out on the equity run, thn I want to be able to buy a Ferrari on credit and have them pay for my toy as well :)