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Crazy Week

Well, the truth is, my head is still spinning.
Of course Bernanke must be a smart guy, and I have to acknowledge that too much was already in play at the beginning of his term. Watching Maria Bartiromo interview Greenspan and I was floored at his lack of awareness regarding the quantity and quality of the subprime mortgages there were out there. So I think Ben came in to this as an accident waiting to happen.
Given that it takes X months for a rate drop to have any impact on the economy (economy, not the market) we will likely still have a bagel, but as the cheap money once again floods the market, it may be short lived. As far as the 3/4% drop, I think that was a sign of weakness and panic, and the market reflected that.
In a few years this should be seen as any other dip, a buying opportunity. And the next cycle up is where I shift allocation to the mix I’d have at retirement, as I’m looking 5-7 years out.
Enjoy the weekend,

  • Daniel January 26, 2008, 8:30 pm


    It amazes me how much everyone glorified Greenspan while he was in office, and then he conveniently retires before a major issue (which was indirectly caused by him). Then he publishes a book seemingly saying “hey, I kinda set you up for failure.” Then he gets a job as an advisor to a firm that made over $15 Billion from the mortgage meltdown.

    Thanks for reading my blog!


    (And thanks for visiting mine! – JOE)

  • eric January 27, 2008, 8:37 am

    What if this is not a liquidity crisis but a solvency crisis? Can the fed provide capitol, or only credit? What’s the difference?

    Why is it that sub-prime borrowers are going into default? Do they lack something needed to make monthly payments? Will lower FF rates fix that?

    Is unemployment causing the defaults, or are the defaults causing unemployment?

    Could one argue that it was the 1% federal funds rate and freely-flowing liquidity that caused the sub-prime crisis? Does it stand to reason that more low interest rates will cure the problems? And what does that say to the long term viability of regulating the economy by “targeting the federal funds rate”?

    Too much “credit” given to the fed when it deserves so little.

  • JOE January 27, 2008, 8:03 pm

    eric – you pose more (great) questions than I can address here. But I do agree that the situation is not so simple, I do believe there was a combination of events that came together to cause the subprime mess (as I’ve posted here) and that it will take time for the system to right itself again. ARMs’ rates resetting were the turning point that set the stage for the defaults. A bit of an oversimplification, perhaps, but a major cause.

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