The Blob on Wall Street
The Blob is a morass of financial intervention that has eaten every bad financial deal too large to let die on its own. To understand the Blob, we must first understand how and why the Blob was formed in the first place.
The evolution of the Credit Crisis began in the mid 1990’s when the money supply began to grow at unprecedented rates. As the money supply grew dramatically, stock prices then began their ascent to the bubble highs of 2000.
Once the stock market bubble was popped in 2000 and stocks began to plummet, it seems that the Greenspan-led Federal Reserve became a serial bubble blower. The Fed lowered rates dramatically into the 2003 low of 1%, a rate that was not only likely too low given the actual economic statistics, but was also left at 1% for too long.
Because of this, another bubble formed, much at the urging of Fed Chairman Greenspan. With 30 year mortgage rates near all-time low rates, homeowners were enticed to bypass fixed rate mortgages and were openly encouraged to take on adjustable rate mortgages. And the housing bubble was born.
Lending standards fell as money flooded the system, courtesy of a too-easy Fed. Individuals and institutions that were burned by a busted bubble in stocks became infatuated with the real estate market and prices were bid up to ridiculous levels. Real estate was not only bid up in the residential space but in commercial real estate, hotels, and raw land around the globe. The combination of easy money and rising prices enticed even the most conservative investors to embrace real estate as stories were told that real estate, unlike stocks, was something tangible that you could touch and feel.
Enter the world of Wall Street alchemy. One of the old phrases on Wall Street is ‘if the lady wants green shoes, sell her green shoes’ …
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* President of Atlantic Advisors Asset Management, Bennet Sedacca brings with him more than 26 years of securities industry experience. From 1981 to 1997 he worked for several major investment banks, specializing in high-grade fixed-income securities marketing, trading and portfolio management. While working for PaineWebber as a Senior Vice- president, Bennet was a member of the Chairman’s Council for four consecutive years. During his years with Salomon Smith Barney as a Vice-president, he established an institutional fixed income presence in Central Florida.
In 1997, Bennet formed Sedacca Capital Management focusing on portfolio management for high-net worth individuals and small to mid-sized institutions. He is also a contributor to the financial website, www.minyanville.com and is regularly quoted in Wall Street Journal Online, Barron’s and Bloomberg.
Bennet graduated from Rutgers University in 1982 with a degree in Economics and was a member of the International Honor Society of Economics.
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