Thursday, December 4, 2008

The race to ZIRP!

Zero Interest Rate Policy is now what the "no nothing" Central Bankers have adopted as a policy, since they didn't adopt a pre-emptive policy of easing, and only reacted when even a Central Banker could recognize the perils this economy faces.

The ECB cut rates 75 basis points to 2.5%.
The BOE cut rates 100 basis points to 2%.
Sweden cuts rates 175 basis points to 2%.

Late yesterday, the Treasury floated the idea of 4.5% mortgages. How about 3%, because that is what is needed. Only a few months back, Hope Now was supposedly going to rescue homeowners with a 6.25% mortgage. That didn't work. Now Treasury is floating 4.5% mortgages. That won't work either, for those underwater on their homes. But it will help yuppies who haven't yet bought a house. Those underwater in homes need 3% for 5 years, and you ZIRP for that to happen.

Instead, they leak to press that the thorn in Treasury's side, FDIC head Shelia Bair, one of the few in Washington that actually knows how to fix the mortgage mess, is on the verge of being pushed out by Tim Geithner. She wants the 3% rate, and mortgage modifications. The bankers that got us in this mess, only want to keep their jobs.

Of course, these are the bankers that rescued Citigroup, which according to today's NY Post was just a glorified Ponzi scheme:

A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that's now choking world banking.

Director Rubin and ousted CEO Prince - and their lieutenants over the past five years - are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.

Investor-plaintiffs in the suit accuse Citi management of overseeing the repackaging of unmarketable collateralized debt obligations (CDOs) that no one wanted - and then reselling them to Citi and hiding the poisonous exposure off the books in shell entities.

The lawsuit said that when the bottom fell out of the shaky assets in the past year, Citi's stock collapsed, wiping out more than $122 billion of shareholder value.

Which is exactly what it was-in layman's terms. Now last weekend, Citigroup director Bob "$15 million a year for doing nothing" Rubin, who had a laudatory article about him in the NY Times, said that he could get $15 million a year anywhere else, and that his compensation at Citigroup was deserved.

Now he is foregoing his bonus this year.

I suppose after overseeing $200 billion of losses (including unrealized mischief) at Citigroup qualifies you as an expert to consult with Government officials!

Maybe he's tag teaming behind the scenes with Geithner to can Sheila Bair!

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