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"Shortsightedness" is to Blame, says Poole

Written By Brian Hicks

Posted January 9, 2008

President Bush would have us believe U.S. financial markets are “strong and solid.”  But as evidenced by nearly every banking stock in America setting new multi-year lows we know that’s not true.

The Fed’s Poole believes it’s “too early to tell right now” if we’ll be pushed into a recession, that economic fundamentals remain strong, and that 2008 will be a year of rising growth. 

Yes, the art of spin is strong in Poole. 

Poole even believes that investment professional “shortsightedness” solely led to the mortgage crisis and the credit meltdown.  While partially true, (excluding myself.  I shorted housing and lending names in February 2007), the Fed is largely to blame, too, as Bernanke failed to realize subprime spillover in the early days of 2007.

If the Fed hadn’t dropped money on the markets, re-inflating a deflating housing bubble; if it hadn’t cut the Fed rate and the discount rates so aggressively; if it hadn’t ignored the coming disaster, we wouldn’t be in the mess that we’re in today. 

Were the banks, hedge funds and speculators largely responsible for our mess?  You bet. 

But an irresponsible, trigger-happy Fed is to blame, too. 

According to Poole, as reported in,

  • “Borrowers took on mortgages they could not afford.
  • Mortgage brokers put too many people in unsuitable mortgages. They knew, for instance, that adjustable-rate mortgages probably wouldn’t be right for many borrowers if interest rates rose as the market expected.
  • Investment banks jeopardized their reputations by securitizing mortgages without doing due diligence on the underlying assets, many of which were based on "inadequate or spurious information."
  • Rating agencies put their stamp of approval on securitized mortgages without considering whether AAA ratings could be maintained if house prices fell.
  • Investors scooped up those securities without doing adequate analysis first.”

If the Fed knew this, why did they pump liquidity into the market and re-inflate what they “obviously” knew?   Instead the Fed got too aggressive, killed the dollar, exposed us to inflation, and is now blaming every one else.  Nice. 

If Poole were smart, he’d just stop talking.

But I digress…

On any stimulus (Fed cuts), the market will rise.  Use it to short the likes of Countrywide (CFC) to bankruptcy.  In fact, it’s not too late to buy the July 2008 5 puts (CFCSA) for further downside.  $1 isn’t out of the question.

Funny thing… I shorted Countrywide (CFC) in February 2007 from $30 to $17, as readers laughed, telling me I was blowing the housing, subprime lending, and inflationary risks way out of control.

But they’re not laughing any more… are they?