The View From 1776
Saturday, March 19, 2011
Leaning On A Weak Reed
Imprudent is too weak a word to describe depending upon the wisdom and effectiveness of the Federal Reserve and Congress’s regulations imposed upon the financial markets.
In the Wall Street Journal’s weekend interview, dated March 19, 2011, the assistant editor of the Journal’s editorial page reports the assessment of a major investor who foresaw the 2007-8008 meltdown of the financial markets.
Mega-Banks and the Next Financial Crisis
Hedge-fund manager Paul Singer recognized the risks of subprime mortgages and bet against them. Now he warns that monetary policy could cripple American banks again.
By JAMES FREEMAN
At the height of the housing bubble, hedge-fund manager Paul Singer was shorting subprime mortgages. By the spring of 2007, he was warning regulators on both sides of the Atlantic that the world was facing a major financial crisis.
They ignored him. Now the founder of Elliott Management says the biggest banks are headed for another credit meltdown. Among the likely triggers for the next crisis, Mr. Singer sees one leading candidate: Monetary policy “is extremely risky,” he says, “the risk being massive inflation.”
In some areas gas prices have reached $4 per gallon, and now Americans must brace themselves for higher grocery bills. This week the Labor Department reported that February wholesale food prices posted their sharpest increase since 1974. News like that has driven Mr. Singer to the history books: He treats visitors to his 5th Avenue office to a copy of a 1931 treatise on German currency debasement, Constantino Bresciani-Turroni’s “The Economics of Inflation.”