'News' Stories Don't See a Way Out

The story reads pretty bleakly:

A broadening array of problems has begun to hit banks, asset managers and investors, threatening to create a new wave of credit crisis. Low-rated corporate loans have plummeted in value and buyers have pulled back from securities backed by student loans, municipal bonds and commercial real estate.

That's the lead story in today's Wall Street Journal. Or more emphatically, THAT'S the lead story in the Wall Street Journal?

What a joke.

It's not just the Journal. The Financial Times has a headline "Subprime credit loss heading for $400 billion, say G7 finance chiefs." We have been using that same number for seven months! When this "isn't news," we will have a bottom. Not until then.

This stuff has been happening for months and months and months. This story reads like the Fed has been right, that the economy is just now rolling off a cliff.

This stuff has literally been going on for a year now. It is why it was so important for the Fed to have been well ahead in cutting rates because with rate cuts -- so often denigrated by the bears -- you can refinance and stretch out. Without them, the pain is too great for the lenders, and it is better just to take the hit and move on ... if the banks had the capital, which they don't.

There is a wholly unrealistic attitude developing, though, about what will ultimately happen now. We have not had a single big default on anything yet; it is all about to happen, and until it happens, we will not recognize how wrong the Fed still is.

My issue with stories like this is that the people who write them sense an inevitability that can't possibly be altered by anything.

That's just wrong.

Here's what happens when you cut rates. The sideline billions -- make that trillions -- WANT to come in and buy. All of these vulture funds, all of these pools of money that want so much to pick and buy stuff that will give you a big return ONLY WORK if the money is cheap.

Then, once the stuff is refinanced and locked in with a good return, the Fed would be free to raise rates again, another concept that seems to elude the doom-and-gloomers.

I am absolutely certain that these stories -- which could have been written months and months ago -- are still better than what we would see if nothing happens from here. Even if nothing happens, we will still be fine once all the debt is crunched, but we will first have to have a severe recession. That can still be avoided, but we won't be able to avoid it if rates don't come down sharply and flush the money from the sidelines.

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