Since the subprime credit implosion, banks are desperate to get credit to run their operations.
The fed is loaning banks money. They are taking the riskiest subprime toxic waste MBS and other crap CDOs as collateral. Stuff no sane banker would touch now.
This stuff is never going to get paid back, so the fed ultimately will take ownership of the houses that back these securities.
This is effectively a massive bailout.
See this for more info. The author goes as far as calling the fed’s actions ‘communist’ in nature by nationalizing all this risky debt.
Yep, and our tax money is going to that… all money loaned out at this point to keep these POS companies going is never coming back. Bankruptcy will be the outcome and funny how the Corporations can wipe the slate while the average Joe Bagholder will be indebted for 5+ years in a Ch. 13. Thanks Bush!!
I have a 401K. Last time I looked there were financials in those mutual funds that I own. So I find it kind of amusing that people are wishing rfor the worst. They complain about big oil compnaes with respect to gas, they complain about mortgage brokerages and excewss liquidity yet they still want to get 12 to 15% a year out of their 401K’s. People you can’t have it both ways. Correction is fine. Hell forests have fires and this makes the forest stronger. This is true of the business environment aswell.
If the Fed or government bail out private companies, they should demand that existing shareholders give up an equity stake in the enterprise. That’s only fair.
When BofA invested in Countrywide, they got 20% of the company. Government money belongs to all citizens, not just shareholders. Capitalism doesn’t mean that shareholders get to make all the money, then when they lose money, the government steps in to make them whole. That’s called a scam.
The fed is really between a rock and a hard place here. Ease and the cheap credit fiesta continues, but the dollar is going to get hammered more as foreign banks head for the exits. Tighten and we’ll get a nasty deflationary spiral where both the rich and poor get poorer. Banks will fail. Wealth will be destroyed.
But I think the upcoming ease in interest rates is just going to prolong the inevitable and ultimately make things worse.
The markets need hard medicine. In the long run I think it would be better if some shaky banks failed, people got poorer for a while and had to endure hard times. The longer the easy money fiesta goes on, the more severe the ultimate crash will be.
The Fed will probably ease on Tues, the only real question is whether they will go 25 or 50. Most seem to think the latter, but with the recent recovery in the CP market, I think 25 is more likely.
.
