Bernanke’s Fed and Greece’s PSI

I have two unrelated comments today:

1. Bernanke’s Fed

A good friend of mine forwarded the following YouTube link which perfectly sums up my views and concerns about the conduct of Monetary Policy both at the Fed and across nearly all Central Banks: http://www.youtube.com/watch?v=PTUY16CkS-k&sns=em – The baffling thing about this conversation between two animated bears is that the authors are in such a minority with their message that they have to resort to a humorous setting to get their point across. I dont know who has a more difficult credibility issue – Ben Bernanke justifying QE without deflation or President Bush justifying invading Iraq without Weapons of Mass Destruction. Your thoughts?

2. The Greek PSI

The long awaited haircut has yet to be announced but there is a growing controversy surrounding whether the nearest maturing March 2012 Greek Bonds will participate or not. This is a source of speculation since the bonds are trading at 45 with two months to run. If they participate then that is about the right price but if they do not then they should be trading close to 100. Administratively it may take months for the haircut documentation and any supporting legislation to take effect so that March 20 2012 may simply not be feasible. The Government and bank negotiators have inside information on this question which is highly valuable. There are reports that hedge funds are piling into the trade at the possible expense of long term private investors.

In the interest of fairness and an orderly market, therefore, if the March 2012’s are not going to be subject to the haircut then the Greek Government should announce this immediately and the bonds should trade up to the benefit of existing holders.

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