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"It's the Devil We Know": Bernanke Reappointed But Hold the Cheers

Posted Aug 25, 2009 01:11pm EDT by Aaron Task in Newsmakers, Banking
Related: ^DJI, ^GSPC, SPY, DIA, XLF, SLK, FAZ
Stocks rallied Tuesday morning following President Obama's reappointment of Ben Bernanke to a second term as Fed chairman. The decision removes uncertainty over Bernanke's fate at a critical time in the economy's recovery - and ahead of this week's record-setting auction of Treasury notes.

At least - that's how it looks on the surface.

But Howard Lindzon, partner at Knight's Bridge Capital Partners and co-founder of StockTwits.com, doesn't think Bernanke deserves credit for either avoiding a second Depression -- or for Tuesday's rally.

"I think this will be looked at as a positive - it's the devil we know -- [but] I don't trust anybody who'd want to be part of what's going on," Lindzon says. "I'm optimistic but not hopeful they picked the right guy."

Lindzon's major concerns are twofold:

  • The government stimulus isn't sticking: "We're a long way from normalcy," he says, citing the housing market in Phoenix, which continues to lag the national recovery. More generally, it's too soon to declare the economy has recovered from the bursting of the housing bubble, which he calls a "mood altering, wealth altering" event for many Americans.
  • Even Too Bigger to Fail: The "too big to fail" policy has rewarded the biggest banks, including some of the most irresponsible, as discussed here. Lindzon notes these policies are coming at the expense of smaller, regional banks, which now face an uncertain future because of higher FDIC insurance fees and pressure to lend to non-creditworthy borrowers.
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