Marketwatch: “For debt-weary consumers, the Federal Reserve’s decision to shave interest rates on Tuesday is welcome news for their stock holdings but won’t do much for their mortgage payments or savings accounts.”

FED CUT: BIG GIFT TO WALL STREET
MY ENCOUNTER WITH GREENSPAN
DO WE ENABLE OJ-IZATION OF MEDIA?

I just had to be there, on Wall Street, to see the reaction to the Federal Reserve Bank’s announcement yesterday of an interest rate cut. I have been writing obsessively about the debt issue, and, cataloguing the incredible fall of the mortgage industry and, with it, a good part of the American economy.

My warnings in the film IN DEBT WE TRUST and the warnings so many people much more knowledgeable than me about these issues were ignored.

And now the Fed was being forced to cut the interest rate even though all the financial analysts warned that a cut would not do much to ease the crisis, or bring relief to the two million families facing foreclosure after being suckered into unaffordable mortgages.

But the Fed which, it is said, whined about the dangers of a “moral hazard”—rewarding bankers for making bad bets, did just that. And in financial terms, it was a big gift. Let’s not forget who runs things.

WHAT THE FED DID

Federal Reserve Cuts Key Rate by Half Point

Central bank cuts interest rate for first time in four years, seeking to prevent a housing slump and turbulent markets from triggering recession.

The Fed did more than it expected doubling the anticipated ¼ point drop. Think about why: They are much more nervous than we know and willing to take radical steps even if it leads to inflation.

Paul Farrell is indignant on Marketwatch:

if you don’t believe a bear recession’s coming, stop reading. But remember the happy-talking bulls: Just a few weeks ago guys like Countrywide’s CEO Angelo Mozilo said: “Nobody saw this coming.” About the same time both Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke were telling us that the subprime problem was “contained.” Now, suddenly it’s a “contagion” fueling “recession” fears.

The truth is, “everybody saw it coming,” especially Wall Street’s happy-talking bubble-blowers. They love bubbles because they make billions during the blowing — and the popping. Even the chief bubble-blower of today’s housing/credit mess, Alan Greenspan, finally admitted on “60 Minutes,” while discussing his new book “The Age of Turbulence,” that he “really didn’t get it until very late.” He was blowing this bubble for years, praising ARMs, ignoring reset risks and misleading investors by dismissing early signals of the coming housing bust as just a little “regional froth.”

Folks we’re in deep trouble when our leaders don’t get it. We’ve had three blind mice at the helm running the “Good Ship American Economy” aground, first Greenspan, now Bernanke and Paulson, all wishful-thinking politicians ignoring reality. How could they miss? Back in mid-2005 The Economist magazine was blunt about the coming recession…

NO WELCOME MAT AT THE FED

Just before the Fed announced a rate cut of 50 basis points—twice what many expected the cut to be—I thought I would amble over to the Federal Reserve Bank building in New York to see if there was an announcement or if anyone would talk to me. Fat chance. The building which looks like a medieval fort or prison with barred windows was surrounded by its own Federal Reserve police force. They wouldn’t even let us film the building. Hows’ that for secrecy. In fact, secrecy and deception—not public disclosure is his middle name:

Earlier I read a statement by a former Congressional aide named Auerbach who worked with the Banking Committee. He writes in a new books about deception at the Fed undr Alan Greenspan: “For 17 years, the Fed kept transcripts of its meetings while telling Congress they didn’t. Under the direction of Rep. Henry Gonzalez, I found those transcripts around the corner from Greenspan’s office after a managed plan for Congressional testimony failed to mislead the Congress about their existence.”

ME AND ALAN

The very name Alan Greenspan makes my blood boil. This guy is an ideologue and has done tremendos damage in the name of a not so free market. He gave the funeral oration for Ayn Rand. I watched him joke with Leslie Stahl on 60 Minutes about how he had mastered the art of dissembling, giving interviews without saying anything. Now he tells us that all the insiders knew that the war in Iraq was about oil.

The man also is a master of deception and all the while married to Andrea Mitchell, an NBC News correspondent who helped him develop his media friendly persona as a guru. She should have investigated him—not married him.

I was about a half block from the NY Stock exchange when a call of nature led me into the Borders bookstore. When I was going in, believe it or not, Alan Greenspan and entourage was leaving I couldn’t believe my eyes. He had just done a book signing for his misleading paen to himself, “ The Age of Turbulence,” a book hyped on all media as a brilliant dissertation on the economy.

Naturally, our Globalvision camera was not on, but I grabbed his hand as we hit the streeerm and introduced him to my colleague DJ whose eyes just about popped out as if he was my best friend. Standing in the street, alongside the SUV and security unit, there was no opportunity to challenge him. Because, believe it or, not folks there wanted his autograph. So I decided, since no one would believe this, I will get one too.

“Alan,” I say with as much chutzpah as I can summon “Sign this. I hand him a dollar bill, doubting that he would deface our currency. (Isn’t that illegal?) He grabs the bill and scribbles on it. And then he is gone into the car with Andrea and the publicists tailing along, off to get more attention for himself.

GREENSPAN’S CRITICS CALL HIM A LIAR

His critics meanwhile are not all over the airwaves but some like Paul Krugman and Bill Greider have been able to expose his duplicity on the op ed page. (Only 10% of NY Times readers read it, Greider who wrote a book about the Fed called “Secrets of the Temple,” was published in San Francisco. He says:

Alan Greenspan has come back from the tomb of history to correct the record. He did not make any mistakes in his 18-year tenure as Federal Reserve chairman. He did not endorse the regressive Bush tax cuts of 2001 that pumped up the federal deficits and aggravated inequalities. He did not cause the housing bubble that is now in collapse. He did not ignore the stock market bubble that subsequently melted away and cost investors $6 trillion. He did not say the Iraq war is “largely about oil.”

Check the record. These are all lies.”

Says Doug Henwood of the Left Business Observer and author a book on Wall Street: “”Since Alan Greenspan, like the good Ayn Rand protege that he is, believes we’re all motivated by material self-interest, you have to assume that his recent bout of frankness is part of his marketing strategy to sell books and boost his six-figure speaking fee. Why else would he suddenly decide that there really was a housing bubble, after having denied it when he actually could have done something about it? Why else would he suddenly turn on the Bush administration after years of serving as a loyal GOP hack and giving them political cover for their disastrous tax cuts? And why else would he suddenly declare the Iraq war to have been about oil, violating all the proprieties of mainstream discourse?”

And what about his role in the housing bubble? Greenspan denies any role in it:

Greenspan: Fed Couldn’t Stop Housing Bubble

Stefan Karlsson writes about Greenspan, calls him, “The Liar, The Fraud”:

He denies his role in the housing bubble by pointing to how long term interest rates did not rise after the rate increases in 2004-2005. This is dishonest for more than one reason. First of all, the housing bubble started already in 2001, when he pushed through rate cuts of an unprecedented magnitude, from 6.5% to 1.75% in a mere year. Secondly, because of the increased popularity of adjustable rate mortgages, short-term interest rates were just as important as long-term interest rates. Thirdly, movements in market interest rates always tend to precede movements in the fed funds rate as market interest rates is really the future average fed funds rate during the duration of the bond.

WHAT HE SAID TODAY

Meanwhile, the news media gobbles up his every word. Today, the man known for rate cuts was warning of inflation. What a game this is:

Fed would have to raise interest rates to double-digit levels in coming years to thwart inflation.

Greenspan calls outlook ‘pretty gloomy’

Greenspan: Crisis ‘an accident waiting to happen’

AND WHAT ABOUT THE RATE CUT?

Stocks soared with the Fed’s bailout As for today’s action—and I know most people don’t follow this with the religious intensity that I have developed—here are some articles to check out

Wall Street cheers Fed’s bigger-than-expected cut

Bernanke Can’t Bail Us Out

STILL SINKING

And by the way, foreclosures soared in August and housing values are down, down down

The national foreclosure rate last month was one filing for every 510 households… “The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of subprime adjustable rate loans are beginning to reset now,” RealtyTrac Chief Executive James J. Saccacio said.

House prices tumble 18%
Glut, foreclosures push Metro values down from ‘04 peak

Robert Manning, author of Credit Card Nation, and our advisor on IN DEBT WE TRUST wrote to me today:

Now is when my “double financial bubble” argument is going to get interesting. If these foreclosures are the people with the least access to credit/and or already maxed out in debt, what is going to happen to those with other lines of credit when they can’t sell their homes? By the way, the credit card companies are more aggressively marketing to those with mortgage distress! Wait until the crisis hits DC and then Manhattan… How long before we get to ENRONesque hearings in Congress and demands for jail time? Remember in my Senate Banking testimony I declared that the bottom 50% of Americans could lose their net asset accummulation of the last 10 years… What are these people going to retire on? Is it going to be bail-out over homes (Wall Street) or bail-out over retirement (Social Security?)