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Hedge fund zillionaire Paul Singer is super-mad at the Federal Reserve and Fed Chairman Ben Bernanke over inflation they have not yet quite unleashed.
In his eyes, they’re guilty of “lower and lower discipline, less and less conservative stewardship of the precious confidence that is all that stands between fiat currency and monetary ruin.”
Hedge fund zillionaire Seth Klarman has the same Bernanke bee in his bonnet.
“Is it possible that the average citizen understands our country’s fiscal situation better than many of our politicians or prominent economists?” he wonders, and no prizes for guessing that Seth considers it highly probable.
And it’s not just those two, of course. Fellow master of the universe David Einhorn is on record accusing Ben and the other gluttons at the Fed of an unnatural love for jelly donuts. Yet another investing legend, Stanley Druckenmiller, just called the Fed’s bond purchases the “most inappropriate” monetary policy ever.
All this has “prominent economist” Paul Krugman looking for the roots of Bernanke rage in the personal financial interest of the hedgies. He can’t figure why they’re assailing monetary policies that are the textbook response to the dismal economic conditions that spawned them, and broadly within the economics mainstream (as reflected by the broad support for current policy among the Fed’s policy makers, I would add.)
All this with stocks at record highs, amid what Singer calls the Fed’s “distorted recovery.” Perhaps this is a simple case of performance envy as Joe Weisenthal and Mark Dow suggest, or maybe more a matter of the Fed messing with the unbridled market mechanism the hedgies worship, another possibility Dow cites.
Perhaps more than anything it’s the politics: Singer, Klarman and Druckenmiller were enthusiastic Mitt Romney supporters and donors last year. And Singer was a bigtime bankroller of George W. Bush as well, so it’s more than a little rich for him to fulminate about how the Fed missed mounting financial leverage and risk-taking in the runup to the crash, after financing a leader and a party that encouraged more of both. But Einhorn is a Democrat, the square peg that doesn’t fit.
It certainly isn’t religion or class: every one of these titans of finance grew up in a middle-class Jewish family, just like Bernanke and Krugman. So if Singer wants to whine about “frantically-flailing, over-educated, posturing bureaucrats,” I’m sure it takes one to know one, Mr. Harvard Law J.D. whose father was a pharmacist just like Bernanke’s.
Klarman’s dad was a public health economist at Johns Hopkins who sent his son to Cornell and thence to Harvard Business School. So if the “average citizen” has got more financial horse sense than prominent economists as Klarman claims, perhaps he should have saved himself the tuition. And if he still thinks that “with all the printing, the credibility of our entire trust-based monetary system will be increasingly called into question,” well then ditto.
There’s something to the notion that if you hold market mechanisms sacred, and if you’re used to the being able to move a market in the stock simply by expressing an opinion about it (and sometimes without even bothering to express an opinion) then there might be some resentment of an institution determined to manipulate asset prices in the name of economic therapy. Before only you could do that, albeit only in a given stock. Now the Fed can do it to stocks as a class in the name of an objective as trivial as keeping most of the schmoes employed, adding insult to injury by leaving your fund trailing the market.
Worse yet, for those convinced that it’s wrong, is that the Fed’s medicine is gradually working. AIG has repaid its bailout; Fannie Mae has almost repaid taxpayer debt. Jobs are slowly trickling back. Housing is growing again.
Meanwhile problematic inflation still hasn’t happened like we’ve been warned for years it definitely would. Banks, the institutions with the power to create some via more enthusiastic lending, are simply not cooperating in sufficient volume. And so the rising tide money the Fed supposedly creates inflates asset prices in such a way as to make an index fund vastly preferable to a hedge fund.
It’s enough to make one wonder what a hedge fund manager is for these days, besides misinforming the public about economics.
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Posted in: Ben Bernanke
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