The Federal Reserve's Meeting Tommorrow

Apparently every day trader, senator, resident of America, and furry animal has made some disparaging comment about Ben Bernake over the last several months.

Yet no member of the Intigril Capital Management team has made such a comment public.

Ben Bernake did the best with what he had. Could he have lowered rates more aggressively? Sure. But I contend that even if the federal funds rate had been cut down to 3.5% by October, such an action wouldn't have stemmed the decline. Subprime borrowers would have still not been able to afford re-adjustments of interest rates to 7% or 8% instead of 9% or 10%.

The problem which lead to the housing crisis was NOT a matter of regulation. Lack of ENFORCEMENT of good lending practices led to the decline. Banks wanted to sell loans to people who couldn't afford them and Alan Greenspan did nothing. He has admitted that he knew of the problem and felt powerless to regulate it.

Okay Greenspan, your succesor FORCED JP Morgan Chase to buy Bear Stearns and you are claiming that you couldn't stop a few guys (and it was just a few companies) from making crappy loans?

Anyway, who is responsible and what should have been done is largely an academic question. My interest today is to discuss the implications Federal Reserve Board Meeting which is taking place tommorrow.

Honestly, I don't care if the rate cut is a quarter of a percent or a half of a percent. You shouldn't either. The key here is what Bernake says, not what he does. Understanding his thoughts on how long it will take for the US economy to recover is more important. But I think that's really not that important in the grand scheme of things either.

So what is important about the meeting tomorrow?

Well, probably nothing. We now know that the US is not headed toward depression. If we were, it would have happened already. I know people are worried about the potential for credit card companies to tank next, but credit card companies have already been increasing fees and restricting new issuances of credit cards to prevent future losses. They may not grow during the second half of this year, but only the poorly managed ones are going to go under. Their stocks are so beaten down right now, they'll make plenty of money off of international growth, let alone the eventual recovery of the American market. It may suprise a lot of people to learn that Europe (save the UK) is largely untouched by the credit card industry.

So relax. The stock market may pull back some, but the United States is not going to tank. We may even have to put up with high gas and food prices for another 6 months. So chill out and buy a diet coke. The economy isn't going to hell. If it is and I'm wrong....buy air conditioner stocks.

-Mansij Hans
Member, Intigril Capital Management


Clarification: My views about Ben Bernake do not necessarily reflect the views of other individuals associated with Intigril Capital Management, LLC.