Commentary: Alan Abelson's "Up and Down Wall Street" column in Barron's..
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"WHAT IS MORE THAN PASSING strange is that Mr. Bush chose seemingly at the last minute to do his "to the rescue" bit the very morning that Fed Chairman Ben Bernanke was slated to address housing and its discontents at Jackson Hole, Wyo. We're not really into conspiracy theory, but at the very least, you can reasonably hazard that the White House cabal had a pretty good notion, if not an actual copy, of what Mr. Bernanke intended to say. That suggests two likely possibilities.
The first is that while pretty much assuring the world he'd cut rates expeditiously, both his tone and caveats seem too measured to satisfy the political fire-eaters (a.k.a. advisers) surrounding -- some might call it smothering -- the president. The second is those same devious types, reckoning correctly that even Mr. Bernanke's tempered expression of concern about the parlous state of housing and the mortgage mess would give stocks a shot-in-the-arm, were determined that Mr. Bush get a big helping of the credit.
Barry Ritholtz, the canny market watcher and proprietor of the eponymous Ritholtz Capital Partners, also finds the timing of the president's remarks "intriguing." He points out that not only did they upstage Mr. Bernanke's eagerly awaited speech, but they came on the eve of a three-day weekend, the last day of the month and the last day of the fiscal year for some financial firms.
If you're "introducing a major economic policy initiative that was going to address a major issue," he wonders, "wouldn't you wait until Tuesday? It's only four days away," and he notes that "this is a huge vacation week and many people aren't around." Which, we might interject, makes for a very thin market, all the more likely, as those wily advisers were no doubt aware, to produce a rousing response to the slightest hint of a bail-out for hard-pressed homeowners and, of course, lenders as well.
To Barry, it all smacks of politics rather than policy, as well as a desire to give a lift to big investment banks, precisely when they could use one most. The group, as you may have noticed, has been floundering badly of late, both in the marketplace and the stock market.
THE IRONY IS THAT MR. BUSH'S proposals may have served a function in goosing a very nervous stock market but aren't likely to yield much else than disillusionment.
A hedge-fund manager quoted by Barry sums it up rather persuasively: "I don't see anything in Bush's plan that will change the insolvency of the home buyer. The 'system' is illiquid (and that 'problem' was addressed by the central banks two weeks ago), but the 'borrowers' are insolvent. Nothing I've seen yet changes that fact. Nothing. Besides, has this administration, which doesn't believe in government programs, ever done anything well bureaucratically?"
Softening the tax bite on mortgage write downs and allowing homeowners who are delinquent by more than three months and who have a decent credit history to switch into a Federal Housing Administration loan carrying a lower interest rate will effect modest fixes, but are no big deal. Certainly, given the wretched condition of housing, the inexorable decline in home prices and the prospect of a huge resetting upwards of adjustable-rate mortgages over the next 12 months, with a big spike in March '08, we're talking Band-Aids rather than serious relief.
Now that the president, however tentatively, is officially on board, the bailout bandwagon is sure to pick up speed, volume and passengers, particularly with an election year looming. That could mean, as the sharp rise in the price of gold, up over $7 an ounce on Friday, gives fair warning, a rash of fiscal fecklessness, fresh debasement of the dollar and that most unenviable of economic combinations -- no growth and inflation.
What it doesn't mean is a return to the good old days of easy and just about free credit and all the nice bubbly things that went with it. Nor, we fear, does it portend even a modest rebound in housing in the next 12 months. The party's definitely over and no one's sorrier than we are. It sure was fun to watch." |
