Opinion

Felix Salmon

Counterparties: Well Fed critics

May 10, 2013

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At a conference in Chicago today, Ben Bernanke seemed like he was talking directly to his critics. In a speech on monitoring the financial system, Bernanke’s message was, essentially: we’re keeping an eye on things. (Shadow banking, in particular, is still a risk, he warned.)

Bernanke’s speech comes on the heels of this year’s Ira Sohn conference in New York, where, as Joe Weisenthal and Reuters both noted, one of the major themes among hedge fund bigwigs was “Bernanke hate”. Stanley Druckenmiller, a former protege of George Soros, told the crowd that the Fed “is running the most inappropriate monetary policy in the history of the developed world”. Paul Singer worries that the “cessation of money printing will cause an instant Depression” and says the Fed’s much-discussed end of quantitative easing will be difficult to impossible. And prominent economist Martin Feldstein, a former Reagan econ adviser, wrote Thursday that the Fed’s quantitative easing program has loaded up the Fed’s balance sheet but hasn’t helped the economy in any significant way.

Why all the anti-Bernanke comments and talk of Fed-induced bubbles? Ryan Avent cites a few factors, including recent (nominal) stock market highs and a February speech, in which new Fed governor Jeremy Stein warned of a number of possible financial market bubbles. Paul Krugman thinks the Fed bashing may be just be self-interest — hedge fund managers are paid as a percentage of their overall profits, and the industry certainly has been terrible in that regard of late. Weisenthal says “anti-inflation is kind of a nostalgia trip” for old American hedge fund managers stuck in the mentality of the 1980s.

Pawel Morski looks at lending, the shadow banking sector and the bond market and sees little evidence that the Fed is pushing the financial sector into anything resembling pre-crisis behavior. Still, the anti-Bernanke crowd may have some new ammunition: junk bond yields fell below 5% this week for the first time ever, IFR notes. As the Fed has kept interest rates at historic lows, investors looking for higher returns have piled into the junk-rated corporate debt. Even if that 5% record is effectively meaningless, these milestones can have an effect. “Asset bubbles now rank as the number one concern on credit investors’ minds,” Bank of America Merrill Lynch analysts said. - Ryan McCarthy

On to today’s links

Interesting
What nail salons tell us about the benefits of low-skilled immigration – Tim Fernholz

Right On
Abenomics might be working in Japan – NYT

Legalese
California sues JPMorgan Chase for flooding the courts with credit card debt cases – NYT

Deals
Carl Icahn gets serious about a Dell buyout alternative – WSJ

The Fed
How the Fed is monitoring the financial system – Ben Bernanke

Educational
Maybe college isn’t for everyone. But it’s probably for you – Dylan Matthews
In other news, the employment-to-population ratio for college graduates is declining – Business Insider

Good Luck With That
In Asia, “property trusts are the new gold” – Reuters
Meanwhile, in London, half of all new home purchasers are foreign – Bloomberg

Wonks
A defense of the wonk bloggers – Mike Konczal

And, of course, there are many more links at Counterparties.

 

Comments
2 comments so far | RSS Comments RSS

“Fed bashing” from people like James Grant (and his readers, Druckenmiller, El-Arian, Faber, et. al.) goes at least as far back as the 87 crash. What’s new?

Low interest rates? David Stockman writes:

“the Fed’s prosperity management model has led to the extinction of the traditional saver class. During the fourteen-year period since the Greenspan Fed panicked at the time of the LTCM crisis, its interest rate repression policies have resulted in an inflation-adjusted return on six-month bank CDs of exactly zero percent.” (The Great Deformation, p. 496.)

And of course the “investment return” on Treasury’s most recent 4-week T-bill auction (before inflation) were just that: 0.000% — precision to 3 decimal places.

http://www.treasurydirect.gov/RI/OFBills  

Bernanke’s legacy will be the assist he gave beleaguered PE titans, whose top nine executives took home only $1 billion in dividends and compensation last year:

http://online.wsj.com/article/SB10001424 127887323293704578334651224569798.html

We get the blogosphere we deserve. sigh.

Posted by TBV | Report as abusive
 

The industrial FED apologist complex.
Is there an organization with more empirical evidence of ineptness? But just as the military industrial complex has a vast incentive to justify and expand itself, the same applies to the FED.

http://www.ny.frb.org/newsevents/speeche s/2007/gei070323.html

http://www.federalreserve.gov/boarddocs/ speeches/1999/19990319.htm

http://www.federalreserve.gov/boarddocs/ testimony/2002/20020417/default.htm

http://www.ritholtz.com/blog/2010/01/ban king-sector-remains-literally-unchanged/

http://www.bloomberg.com/news/2011-12-06  /bloomberg-news-responds-to-bernanke-cr iticism.html

Yes, the US is in the best of hands….the great recession was like a hurricaine or sumthin’

Posted by fresnodanhome | Report as abusive
 

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