Wednesday, Jan 23, 2008
Helicopter ben's crash-landing in the making...
Will the cure be worse than the disease?: Fortun/CNNMoney
"Politicians are scrambling to offer a stimulus package, and Fed Chairman Ben Bernanke is slashing interest rates. But they may be paving the way for a bigger calamity down the road."
Posted by trough2010 @ 08:23 AM (325 views) Add Comment
1 Comment
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1. happyrenterz said...
The timing seems like panic but I think the Fed it is more about it being sensitive to criticism that it is "behind the curve" rather than panic. Also I found an interesting take article with a different view supporting Fed actions here.
"The Fed isn’t panicking, nor is it trying to bail out investors—it’s in a fight with a bond market that’s refusing to cooperate. That’s where the panic is. Try to think of it from the Fed’s point of view. The central bank is ultimately here to protect the banking industry. The irony is that the Fed isn’t trying to bail out stock investors, it’s really catching up with a bond bubble, where people have made too much money.
Before today’s cut, the five-year T-note was 160 points below where the Fed Funds is. If you were a bank, you have zero reason to generate new loans. Just plop all your money in a long-term bond fund and you’re fine. The Fed can’t let that happen."
I don't understand bonds but it does make sense that if banks don't lend anymore then the economy is doomed to a hard recession.