Stupid Fed tricks

[MadHound]

I woke up yesterday morning to the great news that now the American people have cashed out their houses equity to the point where average equity has slipped below fifty percent, for the time since 1945. Yep, Americans now have more debt than equity tied up in their house. Not a good thing, not a good thing at all. <http://www.usatoday.com/money/economy/housing/2008-03-06-foreclosures_N.htm>

As alarming as that story was, the midday announcement by the Fed just floored me. The Fed has been desperately cutting rates the past few months in order to stave off the incoming economic tsunami, but all these cuts have done is raise inflation at exactly the wrong time. So yesterday, the Fed decided to try another stupid trick, pouring billions more into the banking sector in order to that the banks can have more money to loan. OK, loaning money to banks is fine and dandy, and the Fed is trying to stave a banking crisis the likes of which we haven't seen since the Great Depression. But the trouble is, the Fed also loosened up what they would accept as collateral. This is the really stupid part, the Fed is now going to take mortgage backed securities as collateral for these loans their making to the bank. Yes people, our government is now going to bail out the banks, and leave the government stuck with a bunch of worthless mortgages and properties. All with our tax money.
<http://news.yahoo.com/s/afp/20080307/pl_afp/usbankfinancebanking_080307161249>

It's not even the fact that the Fed will be taking over these mortgages, it is the sheer simple fact that instead a bunch of little banks failing(and even some big ones), mostly those who deserve it, instead we're quite possibly going to witness out Central Bank fail. Is anybody thinking out there? Does anybody have a clue what a stupid move this is? I was never a fan of Greenspan by any means, but at least he had the good common sense not to tie the noose around his own neck. Hell, Bernanke is not only tying the noose, but he's built the gallows and tested the trap door to go along with it.

Hang on tight folks, this is going to get really, really ugly. All those fine checks flying out from the Treasury this spring, go change them into Euros, they will hold their value much better than dollars will.

[MannyGoldstein]

1. The Fed Knows We're Fucked

The dike is giving out, and they're sticking fingers in as the leaks spring up, hoping like hell for a miracle to prevent the final cataclysmic burst.

They've given up managing for the long term, now it's just day-to-day.

[MadHound]

2. Oh I agree with you,

But what the fuck are they thinking when they stick their own necks out for the ax? Really, if they pull in even as little as 50 billion in mortgage back securities, they're going to take a hit that they can't recover from. This just makes absolutely no sense.