Andy Kessler in Today’s Wall Street Journal

Andy Kessler spun a nice yarn in his book, Running Money. It was about the trials and tribulations of Kessler and his partner in creating a hedge fund, finding investors, raising capital, investing capital, and negotiating with and rejecting seed funders who wanted a large stake in their management company in exchange for a small amount of capital. It all took place in the middle of the dot com bubble. Today, he speculates on what is really behind the Fed’s QE2:

I have a different explanation for the Fed’s latest easing program: Without another $600 billion floating through the economy, Mr. Bernanke must believe that real estate (residential and commercial) would quickly drop, endangering banks.

The 2009 quantitative easing lowered mortgage rates and helped home prices rise for a while. But last month housing starts plunged almost 12%. And in September, according to Core-Logic, home prices dropped 2.8% from 2009. Commercial real estate values are driven by job-creation and vacancy rates, both of which are heading the wrong way.

Because of unexpectedly bad construction loans, the staid Wilmington Trust was sold to M&T Bank earlier this month in a rare “takeunder”—what Wall Street calls a deal done below a company’s stock value, in this case by 40%.

In other words, real estate is at risk again. But Mr. Bernanke would create a panic if he stated publicly that, if not for his magic dollar dust, real estate would fall off a cliff.

Read the whole thing (subscription required):

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