Fed and Friends: Games People Play

Just a few months ago the Fed Chairman, Bernanke, said this would only be a $50 Billion problem. Then it was maybe $100 Billion...then $150 Billion...now $170 Billion+?!?! We are in the 1st inning of a long 13 inning game.

Those Fed rate cuts along with the Fed and other central bankers worldwide are causing the highest inflation in nearly 20 years. Did it help or hurt? Clearly it is not helping the foreclosures or the value of the money (what you may have left!) in your bank account.

Greenspan said yesterday it won’t be over until homes sell. Prices need to plunge to 50% less or we all need to get 50% raises. What!?!? Obliviously, there will need to be a further 'correction" in home prices, BUT stating for the record that 'prices need to plunge to 50% less...' is defeating all the measures that are suppose to circumvent or at least minimize the potential economic carnage from the housing and sub-prime disaster. If I were a potential home buyer and I hear this coming from our leader at the Fed...well, I think I'd wait a while before jumping in the market. And surely that is exactly what is happening.

Harry

Fed and Friends: Games People Play

9:36:48 AM December 12th, 2007

Now that I’ve got your attention. This isn’t a game. (Or is it?) But the Fed’s joint action with friends from around the world shows several things.

First, it shows why the Fed was so comfortable not cutting rates more than a quarter of point, which as I pointed out yesterday gave the initial impression that it wasn’t kowtowing to Wall Street. Well, it wasn’t kowtowing because it didn’t have to: It knew this was coming — a Wall Street pleaser, for sure — which makes you wonder whether there would’ve been a half-point cut, after all, if this bag-o-tricks wasn’t already in its hip pocket. (Otherwise, why not announce this yesterday, or the day before, or the day before that?)

But let’s take this a step further, to point two: If the Fed needed a little help from its friends, of vice-versa, wouldn’t that suggest that the situation we’re seeing is far worse than even we know? From what I can tell, this kind of action isn’t done willy-nilly. This credit crunch is a world-wide event. Lots-o-mortgage-and-other-loan junk stuffed in lots-o-smart-guy-portfolios here, there and everywhere.

The beat goes on…

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