8/22/2007
Senate Banking Committee Chairman Chris Dodd held a meeting in his office with Fed Chairman Ben Bernanke and sidekick Henry Paulson. Is it a bit strange that the Fed Chairman and his deputy should have to humble themselves by appearing at Dodd’s office instead of neutral turf? Yah, I know… government officials are the servants of the people, yada, yada, yada….except for elected officials who are only pimping the people. The Bernanke meeting was a great photo op for Senator Dodd, a bright fellow, bright enough to calculate the political points added to his flagging presidential campaign. Behind this politics of the dollar is the hit on the economy posed by the mortgage credit crunch and fallout. Dodd has to appear to be doing something about all those people who risk losing their homes, and for all those others who want mortgages on homes costing more than $417,000. Dodd’s position is suitably triple-fold:
• He must chastise the lending establishment for “predatory” practices in the granting of sub-prime loans.
• He must support sub-prime loans as a means of getting poor people who could not otherwise afford homes without sub-prime lending practices.
• He must create the impression that it is within the Democratic Senate’s power to engineer a fed rate cut even while just about everyone else knew (except me) that, by his public grandstanding, he made the Fed’s job a great deal more difficult by undermining its credibility.
It’s true that I discovered just last week that economics was at the root of so much human activity, but you’d expect someone like Chris Dodd would have discovered it a few weeks (or even months) earlier. Apparently, this sub-prime lending has been going on for quite some time. Erin Burnett mentioned “years,” I believe. This was confirmed by Maria Bartiromo later in the day on CNBC. Mark Haines and David Faber acknowledged the truth of it. I think it was Bob Pisani who called Dodd’s after meeting presser statement a reflection in a “hall of mirrors.” Could it be?
I close this extended missive with high hopes:
• We hope Fed’s recent move of pouring liquidity (money) into the economic by lowering the “discount window” rate will continue to work. It does seem to have stabilized the markets, at least for the past few days.
• We hope that politicians like Chris Dodd will not meddle and play politics with what the Fed does best.
• We hope that the poor will buy nice houses for their families and be able to support the obligations associated with that by participation in a strong and vibrant economy.
• We hope that no one ever takes a loan deal that carries “prepayment penalties” and offers “interest only” loans.
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