The strategy of the Fed is a lot like the strategy of the guy who disposes of bodies in Pulp Fiction, although you have to imagine that guy trying to cover up for the St. Valentine’s day massacre. How does the Fed take out the dead bodies in full public view while pretending that nothing is happening? Very carefully. Some third party action here, a casual announcement that it is opening up half of its resources, 400 billion dollars, as a sort of charity fund for predatory meta-lenders there. And it is treating the dollar like skeet, of course –let’s shoot that value down and treat the American consumer to some real, good old fashioned inflation – ein bisschen Weimarmusik, if you will. Later on, maybe we will all sit down and try to figure out why the economy was put in the hands of Milton Friedman's mutant ejaculate. Fun while it lasted, boys!
Here’s the grit in the grift: if you keep saying shit that turns out not to be true and it turns out to be not true the very next day, it can get embarrassing. If you say we have no liquidity problem one day and the next you say, oh, did I say liquidity? I meant to say liquids – we have plenty of liquids here in the Boardroom. Single malts galore! Then people begin to suspect you not only don’t know your shit, you never knew your shit. Now, you can tell the yahoos and suckers out there almost anything – the last eight years have shown that. But the slightly more elevated yahoos and suckers who are aspiring to the yacht class get all panicy when they realize they have serious money in the Liars Club. Hence, they rush in to get it out. They start to shake the very bones of the system, moan, groan, and shit in public. It is very hard, in the midst of this freak show, to discretely dispose of the victims.
All of which leads me to this quote from Chernow’s biography of J.P. Morgan:
The 1907 panic would be the last time that bankers loomed so much larger than regulators in a crisis…
“The panic was blamed on many factors – tight money, Roosevelt’s Gridiron Club speech attacking the “malefactors of great wealth,” and excessive speculation in copper mining and railroad stocsk. The immediate weakness arose from the recklessness of the trust companies. In the early 1900s, national and most state-chartered banks couldn’t take trust accounts (wills, estates, and so on) but directed customers to trusts. Traditionally, these had been synonymous with safe investment. By 1907, however, they had exploited enough legal loopholes to become highly speculative. To draw money for risky ventures, they paid exorbitant interest rates, and trust executives operated like stock market plungers. They loaned out so much against stocks and bonds that by October 1907 as much as half the bank loans in New York were backed by securities as collateral – an extremely shaky base for the system.”
Pikers! in our new supersystem, places like Carlyle Capital thought nothing about being leverage 32 to 1 - keeping money as a sort of white elephant being so fucking passé.
Well, we will see what tricks in the body removal trade the Fed will come up with next week. This is the new, ”please don’t notice you are in a recession and your 401(k)s are crap” recession. There’s even a Faulknerian note – Birmingham, Alabama is rapidly becoming a sink hole as the stock market plunging done by the good uber-Christian city managers there have lost more money than anybody knew one midsized city could lose.
So this song goes out to my Birmingham Alabama buds who obviously were doing this whilst planning Jefferson County bond issues!