QE2 is ending in June. But globally, QE3 has already begun. As usual, Japan is the pacesetter. As temperatures rose at its Fukushima reactor so did Japan’s monetary base – at the rate of 100% per week! What happens to all this new, hot money? No one knows, exactly. But today, at The Daily Reckoning, we have advice for everyone – central planners, politicians, and householders, too: if you have money, pretend you robbed a bank. From the point of view of a modern economist, nothing stimulates better than a bank robbery. The money leaves the cold embrace of a bank vault; soon every pimp and bartender has his pockets full. Hot money gets around.
An article in Rolling Stone Magazine provides an illustration. It explains how one Wall Street wife, and one Wall Street widow, formed a company specifically to take advantage of the US government’s spending spree known as TALF. You’d think the feds had already done enough for the Mack family. John Mack runs Morgan Stanley. Had it not been for the generous support of the US government and the Federal Reserve, he might be parking cars. Instead, the feds bailed out the entire financial sector. First, it bought up Wall Street’s bad bets at inflated prices and then lent banks money at artificially low interest rates; they were invited to lend the money back to the federal government for a sure profit.
Liquidity moves markets!Follow the money. Find the profits!
Business was so good at Morgan Stanley that the distaff side of the Mack household apparently couldn’t resist. In June, 2009, with her friend Susan Christy, Mack set up an investment company and put in $15 million. Then, they borrowed $220 million from the government. A brave move on their part? If you think so, you are as naïve as a turnip. The fix was in; the two used the money to buy non-recourse loans at deep discount. If the loans increased in value, they would make a profit. If they fell, the government would take the losses. Much safer and more profitable than robbing banks. Two months later, Mr. Mack, perhaps with a little assistance from his blond helpmate, bought a limestone carriage house in Manhattan, with a 12-space garage for the getaway cars.