Jim Cramer, who has been quite consistent in his condemnation of the Fed since this wholly unnecessary financial unpleasantness surfaced last summer, says that panic will be in charge on Tuesday:

There was a time when there wasn’t so much to fear. Had the Fed cut rates rapid-fire by 200 to 300 basis points last summer, we could have had refinancing off the short rates for home equity lines of credit and hurting first mortgages. That would have at least given us time to work out of this jam. Just a gigantic short-term cut in the discount rate could have done a world of good. But we got nothing except “The fundamentals are sound.”

Now it is too little and too late. I figure the Fed tomorrow will announce some other complicated scientific way to screw things up, just like it did with the bogus SIV plan and the ridiculously small TAF auctions. All of that stuff is just the kind of small-time, small-think Fed stuff that we have come to expect from this oblivious Fed chairman. Worse is the ludicrous nature of the government’s planned tax rebates, which will do absolutely nothing to get things going at all. Nothing.

Cramers’ opinion of Bernanke has come to be shared by many observers. The Princeton professor was said to be a great historian of the Depression, but perhaps, some say, that only meant that he was a student of how we got into the Depression, since his corrective measures, like those of 75 years ago, appear to be too little too late. The markets have said that the 25 basis point cut on December 11 was an indication that the Fed was out of touch with the reality of the markets.

We live in the internet age. If interest rates should be cut 200 basis points, then the Fed should cut by that amount, in one lump or two, and it should do it promptly. Instead, at least to date, we have witnessed a Fed that seems to observe a 19th century model of information flow — that change has to dribble out incrementally by 25-50 basis points over a couple of years, apparently because information needs months to disseminate and industries and individuals need to process the information. (As economist and Fed observer Irving Fisher said early in the last century “Turn the wheel slightly, and if that is not enough, you turn it some more.”) Rubbish. That’s a formula for being the last car on the roller coaster — going along for a scary ride downhill, until things begin to turn up again eventually.

As it turned out, the Fed cut rates 75bp in response to the global market panic and and the Dow opened down about 500 points, then recovered in intra-day trading, and closed down 128.

This entry was posted on Tuesday, January 22nd, 2008 at 9:38 am and is filed under Democrats, General, Republicans, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.