“In any case, the determination to suppress the destructive downside of capitalism and ensure permanent prosperity is a terrible idea that will not work. Permanent prosperity, after all, is what socialism was supposed to be about, and we’ve all learned that theory doesn’t work. I continue to find it a sad irony that Wall Street — the alleged bastion of capitalism — would cling so dearly to the hope of socialism.
“That’s exactly what the Fed is all about. Its central planners think they can pick the right interest rate with which to run the world, even as the evidence indicates that their efforts over the last 20 years have produced two epic bubbles. This story would strike any sane person as the stuff of nightmare. Sadly, it’s our waking reality.”
Out of silver bullets?
The Fed has lowered interest rates six times since September– and most revolvers only hold six rounds.
Since the FFT was lowered to 2.25% today, that effectively puts it at or below the official rate of inflation. Essentially, free money. But is more debt what we need to cure our ills?
Besides that fundamental question, the interest rates for mortgages and credit cards are actually going up in spite of the FFT slashing, a sign the lenders are not too comfortable passing the savings on to borrowers in these uncertain times.
The revolver holding those special FFT .50 and .75 cal. cartridges is now effectively spent. Sure, they can go even lower- and this nation can look forward to emulating the ten-plus year long emergency Japan suffered through and is just now emerging from.
This action won’t keep housing sales from continuing to decline; nor borrowers from defaulting; nor banks from foreclosing. Indeed, expect housing prices to continue to drop, resulting in further defaults. Know that the true value of deriviatives will be kept locked inside the valuts of investment banks around the world until one day some guy named Margin makes that fateful call and… rinse, lather, repeat as long as there are banks extant.
Meantime, this country agonizingly sinks into a recession or depression from which it might never fully recover.
Such are the rewards of moral hazard.
Or not. Whadda I know, I’m no economist. (Thank Ged for small favors.)
And not one financier will have to return his bonus.
“The Fed might actually start taking paper at one price and then find out (by the time XYZ financial institution is supposed to take it back) that the paper is trading at a different price. Inquiring minds would like to know what the Fed would do about these losses if the repo’ing entity was determined not to take back the collateral.” –Bill Fleckenstein
“No investment banker left behind.” -Ben Bukkake