Wednesday, October 08, 2008

Interest Rates and Past Debates

The big breaking news this morning is that the U.S. Federal Reserve and other major central banks are all moving in concert to slash key interest rates in an attempt to head off global financial turmoil.

The significant detail you must understand in watching this story unfold is that this is a series of coordinated announcements by all participating banks.

The Fed is cutting its key lending rate by a half point to 1.5%. The European Central Bank is trimming its key rate to 3.75% from 4.25%. The Bank of England is dropping its key rate to 4.5% from 5%.

The Bank of Canada, the Swedish Riksbank and the Swiss National Bank also cut rates. So far, The Bank of Japan hasn't had a yen to join in.
(I just couldn't resist that one...sorry!)

The Fed said that while inflation has been high, the rate-setting Federal Open Market Committee believed that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.

The Fed also approved a 50 basis point cut in the discount rate to 1.75%.

There is a big, side-debate going on right now over what is the responsibility for the financial leadership of the world to buck-up and not freak out, because panic is contagious.
We’re at a point where banks aren’t even lending to other banks.

Someone needs to have the cojones to step forward and say, "I’ll take that bet. I see that this is not a death spiral, and I will back American businesses," and support them in being productive in getting the economy re-invigorated.

Someone like a Wells Fargo, willing to take the plunge and out-bid a CitiGroup to acquire Wachovia…and why the Federales would even entertain a counter-argument from CitiGroup is beyond me.

It is time for the regional banks in this country to show their mettle, and lend an ingredient of confidence in the discussion. You who are Bank Presidents in Houston—look among your business customers and figure out who you could best impact by extending reasonable credit.

Small businesses create jobs.
I told you on Monday about Doc Cohen who operates Great American Cookie Company stores all over Houston.
He wants to build three more stores.
Those stores would create 45 new jobs.
Which of you banks would like credit for creating those jobs and adding to realistic economic stimulus in Houston?

That’s where it has to begin, on the local level.
Don’t wait on the Government to fix it, because clearly, these nuckleheads have proven they’re clueless…don’t wait for the Government to screw it up.
Be brave…be bold…be ballsy…and let’s get things going.

In last night’s regrettable Presidential debate, both candidates correctly identified the Energy challenge as a source of correction of our economic climate. They didn’t go far enough in identifying that problem, or in detailing their solution.

Thomas Friedman
recently pointed out that the creation of jobs in the energy sector, to make us less dependant upon foreign sources of energy, would have a bifurcated benefit for America: Less dependence upon foreign oil would lower the price at home…and the creation of those jobs would inject consumer dollars back into the economy.

And I know why neither candidate mentioned that last night—they were distracted by the talking points that they’ve drilled and drilled and drilled upon, and forgot to think with their brains.

During the debate, John McCain proposed a $300 billion program for the federal government to buy up bad home mortgages and allow homeowners to keep their houses.
McCain said: "Until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy and we've got to get some trust and confidence back to America."

Sen. McCain said that as president he would direct the federal government to purchase mortgages directly from homeowners and mortgage providers. The loans would be replaced with fixed-rate mortgages, ostensibly at a loss to the government.

"Is it expensive? Yes," McCain said.
Is it fair? You ask.

Is it smart, I ask.

Here’s what I don’t get.
Both Presidential candidates are harping about how they’re going to change the way things are done in Washington…change you can believe in…meanwhile, they can’t help themselves when they start to spout stupid ideas like having the Government start to buy homes to stabilize prices.

What’s the first thing that happens when an item is perceived to have value that is subject to government purchase? The market becomes based upon a mentality of 'if no one else than the government wants it, it must not be worth much…' and the price will plummet.

Guess what—if the price of your neighbor’s house, that just got bought by a pandering government, just fell through the floor—what do you think your home value is going to look like?
John McCain wasn’t the only logic bender offender in last night’s debate…Barak Obama was spewing his memorized talking points, challenging McCain on tax and revenue policies, and early in the evening demonized the economic policies of the present administration as the cause of all financial calamity.

He then criticized America’s policy in Iraq, pointing out that country now has an economic surplus thanks to the largesse of American taxpayers—although he inflated the number by $20-billion.

Sen. Obama said necessary sacrifices to bring the economy back into balance must first start in Washington by reigning-in spending, and giving up some federal programs. I'm good with that. But then, he proposed sending tax dollars to Georgia—in Eastern Europe, not the Eastern United States—to help build their economy. (This on the second day of a global market bust caused by the failure of American economists and government money managers to correctly diagnose and address domestic financial problems.)

Do you get the sense that these guys just don’t get it?

By the way, for those of you playing along at home…CNN’s website scores last night’s debate as a win for Barak Obama, as does AOL…The Drudge Report poll credits the win to John McCainZogby indicating a two point lead by Obama.

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