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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: yard_man who wrote (41451)	12/30/1998 11:36:00 AM
From: Defrocked	Read Replies (2) \| Respond to of 132070

RE: "I think the federal reserve is in the pocket of big money banks and financial powers either by stupidity or more sinister reasons." Its not as nefarious as it appears but the Fed certainly lost some credibility this fall. (And I wouldn't be surprised if McDonough, an Illinois native approaching 65 years of age, leaves the Fed and joins Goldman Sachs within two years. <G>) Yesterday I saw this Bloomberg article but couldn't find the link. Here it is courtesy of Bosco from the Asian Forum thread. bloomberg.com IMHO this is article passes the "smell test" for its portrayal of the players. What I find bothersome about the latest Fed intervention (other than its the first Fed call I've missed in almost 20 years<ng> and it cost me a lot of money<ng>) is the relationship between GS's motives, the participation of William McDonough in the bailout talks, and the fact that GS is Rubin's former firm. After all, if GS hadn't had the same, albeit less levered, positions as LTCM they would have gladly, hell ecstatically, watched LTCM go under. But because their own positions happened to be similarly misaligned, it certainly appears that GS and member investor banks talked the Fed into additional rate intervention in order to avoid further losses in their own portfolios. GS also had high hopes for their IPO, as high as 4 times book, and definitely does not want to miss the stratospheric valuations for their own equity. One can certainly argue, as I'm sure AG did, that the devil we know (inflation) is better than the devil we don't (deflation). But money growth still matters even in a Goldilocks economy especially double digit growth. Certainly the last rate cut benefited the LTCM workout, reduced credit pressures and offered respite to emerging markets. But monetary actions alone cannot solve real economic issues such as overproduction, excess capacity, mismanagement and deserved bankruptcies. IMHO the Fed has just bought some time and pushed the day of reckoning into the future.