Ben and Wen

So I get up this morning and I hear that Mr Bernanke is suggesting that with yet more pain still to come on the US housing front, perhaps banks should cut the principal portion of the loan instead of just fiddling around with the interest and the tenure (tenor?) - to bring home equity value and loan value closer inline and hopefully limit delinquencies etc (dealing with negative equity by fixing the loan rather than the house price.)

Knocked the markets over in the US (though there was some recovery based on AMBAC bailout rumours... I suspect that this "reason" was as much after the fact and that short covering was in play... participants are not only unwilling to sit on weekend trades, they're unhappy with overnights too) and I thought: more rubbish from Ben... what is he trying to talk up now?

But then a mate pointed out that the loans have all long since been securitized out and are sitting in the investment portfolios of all sorts of people who should know better. And with all the writedowns we've already seen (and will continue to see going forward) effectively writing off expectations for recouping so much of the principal anyway... why not?

(And I am glad that at least somebody is, if belatedly, questioning whether home ownership really is the unreserved positive it's long been made out to be.)
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Meanwhile fellow Fed members Fisher and Mishkin are squaring off against one another on the inflation vs recession issue. "Fisher said inflation readings have not been encouraging and that he believes price pressures can continue to build even in the face of an economic slowdown" while Mishkin feels that faster falling house prices will exacerbate the slowdown via consumption and the financial markets, causing "economic activity to contract further in a perverse cycle."

I think they're both right!

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And the Lex column in today's FT (I remember back when it was literally just one column!) points out that rate cuts push investment dollars out of bonds and equities and into "alternative assets" such as... commodities... which are bound to crash at some point (but from what level down to what level?) but in the meantime continue to stoke inflationary pressures worldwide...

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... Such as in China, for example, where the NPC is currently taking place. In what I believe was the opening speech of the two week babble-fest, Premier Wen said

"I'll take slower growth, dude, I just really don't wanna see anymore price hikes... Keep the pitchforks on the farm, bro'... I'm doin' what I can and I'm gonna stick wit my tight money policy, yo" (or words to that effect.)