One Can But Dream!

Spring is here! Optimism abounds!

And amazing events are unfolding. It's been a quite astonishing day across the pond in the US Senate, with Federal Reserve Chairman Ben Bernanke revealing an amazing policy U-turn.

Although obviously very worried about financial sector woes, and extremely sympathetic to overburdened mortgage holders having their houses repossessed, Mr Bernanke explained that the Fed's main mission had just been redefined.

No longer would it continue to bail out bust banks or cushion careless consumers from their financial foibles.

Its new top job was to hammer inflation hard and to safeguard the external value of the dollar.

That meant no more rate cuts.

In fact, interest rates would now be steadily hiked until consumer price rises greater than an annualised 1% became a distant memory and the greenback recovered at least 50% of the ground it had lost over the last five years.

The heinous economic consequences of soaring commodity prices resulting from the last few years' excess credit creation, said Mr Bernanke, were causing widespread suffering.

He was then joined by former Fed boss Alan Greenspan, who had clearly undergone a Damascene conversion to the cause of monetary rectitude, and who was wringing his hands while muttering "mea culpa, mea culpa, what have I done?"

Greenspan took the microphone, and with his voice quivering, began his own confession: "I always knew the only real money is gold-backed. But I opened the credit tap too far. And when I said that the growth in complex investment vehicles helped diversify risk, I was so wrong. As I was when I also told homebuyers to load up on adjustable rate mortgages."

The Dow Jones Industrial Average immediately plunged 500 points, while the dollar rocketed across the board.

Commodities plunged and gold dropped to $700/oz.

That was just the beginning. At midday a group of former corporate executives, including Stan O'Neil and Chuck Prince, appeared at a press conference in New York. A spokesman stunned reporters by announcing the group's intention to return most of the payoffs its members had received.

"We've thought long and hard about this," said the statement, "and we've realized that both our salaries and in particular our termination payments were quite absurdly high. None of us can think of anything we've done during the last ten years to justify even a fraction of what we were paid, or indeed paid off."

"Having spent most of last year attending a variety of meetings, we can't recall anything worthwhile being said or done. Indeed, we have come to the collective conclusion that they were all a complete waste of time. In all those strategy discussions, we now admit that we haven't the faintest idea what any of the accountants, lawyers and technicians were talking about".

"When we were chatting today, we started talking about subprime derivatives. As the conversation went on, we started asking each other how those CDOs, CDSs and SIVs actually work. Soon we realised that none of us had a clue. But the banks for whom we used to work ended up with billions of dollars worth of the things all over their balance sheets."

"So we've decided to own up to our mistakes".

And as the day went on, it became even more astounding.

At 3pm, another group made an announcement.

Standing under the banner of the American Hedge Fund Association, a gathering of hedge fund managers solemnly declared that they had decided to reverse their standard "2 and 20" compensation package. Instead of charging 2% of capital and 20% of the outperformance achieved, they will now charge 20% of capital and a 2% performance fee.

As one of the hedgies explained: "Let's be honest; taking a big whack of the gains and none of the losses steadily transfers ownership of the capital from investors to us managers. This new fee system merely speeds up the process".

Later still, in yet another remarkable piece of integrity...

...But Then I Woke Up...

More: Bail Out Monday