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Guest Shedfish

Fed Hazard Is Recession, Not An Immoral Bailout

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Guest Shedfish
So, the Fed will cut and cut again.

The question becomes will it be big enough and soon enough to disrupt what is clearly a self reinforcing cycle of credit destruction.

link

the Bernanke Put is not a done deal though, is it? ... and the Trichet and King ones even less so

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the Bernanke Put is not a done deal though, is it? ... and the Trichet and King ones even less so

The author is bemoaning people's inability to buy an inflated asset... it makes no sense other than in the very short term to argue that this is a valid way of reinforcing the economy.

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Guest wrongmove

From the article:

It's been a month of scary statistics but none scarier than a survey of U.S. mortgage brokers that found a third of all home purchase loans originated in August were cancelled.

Now if that happened here, I'm uberbear!

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Also from that article some more grade-A arsery

Paul McCulley, managing director of bond giant PIMCO, called on the Fed to reduce interest rates by a full percent by the end of the year to avert a recession.

"There can be no doubting a Fed Put does exist," he wrote in a note published on Monday.

"...indeed, that was the primary reason the Fed was created in 1913, to provide an 'elastic currency' so as to truncate cycles of panic that predated its creation."

Worked a treat in 1929 - what makes em think it'll work now?

And from Saft himself -

To fear "moral hazard" - encouraging imprudent risk takers by stepping in when markets turn bad - is at this point out of all proportion to the risk that the U.S. tumbles into recession.

Eh......is it just me, or isnt the whole reason we have these problems precisely because of rate-cutting action by the fed?

The solution to a crisis caused by extending too much cheap credit.......is to extend more......cheap............credit....

....She sells sea shells on the sea shore..... I gotta sit down and figure this one out. Maybe I am really stupid?

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Guest An Bearin Bui
The author is bemoaning people's inability to buy an inflated asset... it makes no sense other than in the very short term to argue that this is a valid way of reinforcing the economy.

I agree: this "Bernanke Put" mantra has been infecting all the main business journalists' vocabulary for the last few days and I'm sure it'll continue right up until Sept 18th - very few of them are looking beyond the rate cut and asking themselves whether it would reallly work:

Gerard Baker in the Times is pushing the same line

The assumption is that a.) the Federal Reserve will make emergency rate cuts and b.) these cuts will actually work. No-one's thinking beyond the interest rate cut itself. So they cut rates on Sept 18th - then what? It might give the markets a temporary 'hug' to say that Uncle Bernanke's here with his helicopter and everything's going to be OK but that's about it. At the end of the day, house prices are still falling in the USA and will continue to fall for the foreseeable future and the only thing that could stop that is a remarkable turnaround in consumer sentiment and banking where cheap, easy subprime loans are once again available.

If you're a bank with a tonne of CDOs you can't shift, you're hardly going to lend recklessly again in a hurry as you'll be loathe to take new debts onto your books until you can sell on the products related to previous ones. If you're a US consumer whose house has dropped in (paper) value, who already owes money on 10 credit cards and who's just been fired from Countrywide, you're not going to be in a position to take out another remortgage deal to refinance and continue borrowing either. So who exactly will be champing at the bit to take advantage of any rate cut??

Why don't the business "journalists" realise that the party's over and no amount of rate cutting is going to change that? Their knowledge of basic economics must be zero if they think a 0.5% rate cut will get us all back to the heady days of booming house prices.

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