It’s been three weeks since the last installment of the Ben Stein Watch: had no column appeared today, I would have been ready to declare victory. But it was not to be, and a predictably bad column has arrived, along with an elegant fisking from Yves Smith.
It turns out that "Little Benjy Sunshine", as Stein called himself on October 21, has died. He’s now saying that Ben Bernanke "did not leave the door [to further rate cuts] open wide enough" in his speech last week: "the Fed is still behind the curve," he writes.
He’s also developed an extremely annoying new rhetorical tic:
It’s pretty much agreed by now that inflation comes from the demand side…
Ethanol, at this point, is believed by many to be an energy loser… It is also believed to be more inefficient at powering vehicles than gasoline.
What’s with all these weird passive constructions? It’s pretty much agreed? It’s believed by many? Dude, it’s believed by many that Elvis is still alive. Without any indication of who’s doing the agreeing or the believing, these kind of arguments are simply vapid.
I, for one, would be perfectly happy to take the other side of Stein’s argument, and say that high oil prices are just as much a function of reduced supply (from countries like Iraq and Mexico) as they are of increased demand. You don’t need to be an overzealous Peak Oil type to believe that oil prices go up when production goes down.
But it’s at the end of his column that Stein goes completely bonkers. After saying that "there is a real solvency fear out there right now," Stein decides that what’s needed is a massive recapitalization of large banks, whereby sovereign wealth is used to buy banks’ equity.
Hm. Isn’t that already happening? Aren’t banks doing quite well at attracting new equity investments from governments across the Middle East and Asia?
Well, it turns out that countries like Abu Dhabi and Singapore aren’t quite the sovereigns that Stein had in mind.
The Fed must act decisively to calm these fears by reassuring lenders.
This might even take the form of legislation allowing the Fed to buy stock in large banks on a temporary basis. The banks are already largely socialized through federal deposit insurance. To add the prop of government capital infusions is not such a big step.
Yeah, Stein wants the Federal Reserve to start taking equity risk in big lenders. I’d love to know which "large banks" in particular Stein thinks the Fed should start buying stock in – presumably only the ones where "there is a real solvency fear". Would he care to give any examples of these possibly-insolvent large banks?
If Stein’s idea were implemented, the Fed’s actions would be the ultimate ratification of the market’s solvency fears, and would send the bank’s stock plunging. And in any case it’s hard to square Stein’s fears of bank insolvency with the sanguine declaration with which he finishes his column:
No matter what, we’ll get through it all, but why make it more painful than it needs to be?