Big day at the WSJ & Other ‘tin hats’

Mark your calendar. 2/18/2011 might well be a day where history takes a turn. Something that I have been waiting weeks for has finally happened. The Wall Street Journal has written an editorial that is critical of the Fed and its reckless monetary policies.

To be sure this editorial is mild in its language. But when the Journal says things like this it is time to take notice:

Once again the Fed seems to have worried about deflation long after the threat had passed and even as price pressures from its easier policy were preparing to build. Let's hope it turns out better than it did the last time.

The timing of this is also important. Bernanke is in Paris this weekend at the G-20 party. He is going to get his head bashed by a number of other attendees. The WSJ has just given them the ammo they need. At this point not even the Journal has anything nice to say about Fed policy.

I think we might see a bit of a floodgate on this. Others in the MSM are watching global inflation perk up and cause big problems. They will be pointing their editorial finger(s) at Ben. Soon. Fed bashing is too much fun, after all.

It will be interesting to read the next article by Jon Hilsenrath at the Journal. He has been a steadfast Ben supporter. That crowd is getting smaller by the day. Maybe Jon will hitch a ride on a different (more popular) theme. I can’t wait.

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Speaking of those folks wearing tin foil hats, I know a bunch of them. This group is convinced that the real problem we face has nothing to do with climate change or the economy. It’s solar flares that are going to do us in.

I tend to worry about things that can actually be changed. Things that are out of our collective control are not worth fretting about. If we are going to get hit on the head with a meteor (or solar flares) there is not much we can do about it, so why worry?

There might be some worrying this weekend. Some big flares are in the works. They had a minor consequence on Chinese radio last night. A picture of the light show in the Alps and a video from NASA on the flare that caused it:

 

NASA video link

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An update on a lawsuit between the Justice Department and AMBAC. This has to be one of the nuttier stories around. The IRS “mistakenly” paid AMBAC $700mm as a “tentative” refund resulting from a big restatement of prior year income. Now the IRS wants it back. But AMBAC is in the hands of the Wisconsin insurance commission. So DOJ is suing the State of Wisconsin. I’m no lawyer, but I know a few of the rats. They tell me the IRS will win this one. Wisconsin/AMBAC will lose.

Here’s the rub. AMBAC is insuring a mere $225b of municipal bonds. (8% of all issuance) If they lose the fight with the IRS the will have no equity to pay claims. So the bonds will come into question.That's a lot of bonds.

Will the pending blowup at AMBAC be the straw that breaks the muni market’s back? I don’t think so. But there is a lot of ‘straws’ on that camel right now. The poor beast will most certainly feel the weight of this one.

This stuff can only happen in America. The DOJ suit may well force a broader bailout of the muni market. One step forward, two steps back.

A link to the 2/9 filling by DOJ. I liked this language:

40. Defendants’ conduct is causing irreparable injury to the United States, and the United States has no adequate remedy at law. Defendants’ conduct, unless enjoined, may cause a substantial loss of revenue to the United States Treasury, specifically a potential $700 million federal tax liability that may be rendered effectively uncollectible except from the non-existent assets of the Segregated Account.