Monday, October 20, 2008

On Dasher, on Dancer, on Donder, on Blitzen...

On Horses:
You can lead a horse to water, but you can't make it drink - traditional

On Horticulture:
You can lead a Hor-ti-culture, but you can't make her read - Dorothy Parker

On Banking
You can stuff banks full of capital but you can't make them lend - Ben Bernanke
Corollary: But if you stuffed them full of it, why wouldn't they lend?

On Lending:
OK so maybe Ben Bernanke did not really say 'exactly' that. But he clearly did imply it. When asked about forcing banks to lend during the budget committee testimony on Monday, Bernanke was really quite disdainful that force or guidance would be needed. He took the position that once capitalized, of course, banks would lend. It's as though he said, like, what else would they do? It's the natural order. Fish Gotta swim, bird gotta fly, bank gotta lend 'til it's capital run dry...but didn't that already happen? And isn't 'this' the result of 'that?'

On Cycles:
The economy is weakening. In this part of the cycle lending less is normal for those four-letter-named denizens of the financial sector (i.e Banks). What if normalcy interacts with this crisis mentality and lending IS cut back more sharply- capital be damned? What if you were to lead your horse to water and he refused to drink? What would you do? Shoot him? They shoot horses don't they? What about banks? Bankers? Well, perhaps that's a bit too strong. But you can bet that in the eventuality banks are sitting on a pile of capital and just 'feelin' groovy', the Fed/Feds will find a way to motivate them to mobilize it. For now it is useful to pretend that such a fear could not be farther from the Fed chairman's mind (fiddle dee dee)- even if that very thought is keeping him up at night.

On Drugs:
Because if he did not have such fears he wouldn't be doing his job and he'd have to be ...on drugs.

On Confidence:
But the Fed Chairman's job is also to inspire confidence when things are bleakest. With the President and the Treasury Secretary falling all over themselves to apologize about putting capital in banks, Bernanke has gone for the clear confidence builder instead of the backhanded complement that brings you down. In the end he is doing his job, he is not just being a Pollyanna. It's his job to act that way.

On Pollyanna:
Can Pollyanna wear a beard?

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