Slate today asks the obvious in “When did American companies become incompetent?” (Or least many). Apparently the decade plus of Dilbert was denied access to the rarified airs at Slate. There are so many real reasons to explain this but none of us here are paid to correct Slate.
Moving on, the sense of doom sparked by the fire sale of Bear Sterns is spreading. This beyond lowering the Fed Discount Rate another point. A rate cut is is unlikley to ease commercial credit. Many financial institutions leverages of 20 or 30 times capital. But many many more are as exposed to those unbelievably complex and now obviously reckless sub prime mortgage instruments? No one knows the scale of other Bear Sterns out there. Not even Bob Rubin at City Corp. who said in January of this year that there was no looming crisis. And the Fed’s power is weak anyway. The Bank of Japan, as Bernake knows better than most, literally had a 0% interest rate and it failed to move a moribund Japanese Lost Decade economy. The real question is how do financial markets burdened with deflating assets come to equilibrium in an inflationary environment of possibly staggering dimensions.
Perhaps the Warlord can tap dance again for us. It might raise some badly needed cash.
Also looming along with the strategic implications of the global economy abandoning the dollar in favor of the Euro, etc. the true cost of Operation Iraqi Adventure is far greater than direct outlays. The service lifetime of the U.S. military hardware shortened greatly because of combat deployment. These platforms will require replacement in a remarkable close time frame. It is bordering on lunacy to think even in a normal economic environment that even most of the alleged new mission critical (transformational or not) can be funded. The actual cost in today’s dollar is staggering. In a stagflationary situation. Simply ain’t gonna happen.
One might ponder other demands for attention such as a collapsing public infrastructure nation wide, health care, social security, etc. Quite a challenge even per above competent management. In the end, the Stifung believes that the Fed has a drastically reduced and limited role to play here. Can Congress step up to the plate and pass the necessary legislation to encourage financial institutions exposure by ameliorating the proximate cause re the mortgage exposure. While keeping the moral hazard of giving a get out jail free card to prevent more reckless behavior?
We’ll see sooner than most anticipate. Or are prepared for.