Posts Tagged ‘federal reserve’

The Fed Shouldn’t Bail Out Financials

By: ispeculatornew | Date posted: 03.23.2008 (12:59 pm)

The Federal Reserve has pandered to Wall Street demands and drastically cut interest rates this year. The Fed has also used Depression Era rules to lend directly to investment banks. Now there is talk that the Fed may start to buy mortgage backed securities that other banks don’t want to touch. I feel the Fed has already gone too and if the Fed takes this measure it will send a terrible message.

Financial companies got themselves in this mess by extending way too much credit for their own greed. In addition these companies lent out money without much concern for the credit worthiness of the applicant. Now these loans are turning sour as delinquencies and foreclosures are climbing. Instead of letting financial companies pay for their actions, the Fed has been bailing them out with taxpayer money. This is simply unacceptable.

First, the average hard working taxpayer shouldn’t have to pay for the greed and stupidity of financial companies. These companies own actions left them overextended with bad investments and it shouldn’t fall on the regular person to pay for that.

Second, if the Fed bails these companies out what will prevent financial companies from making the same bad decisions in the future? There will be no deterrent. The message that the Fed is sending is that financial companies can profit from excess risk when times are going good and not have to pay the consequences when times go bad. This is an egregious message to send.

Should the Fed Continue to Drastically Cut Interest Rates?

By: ispeculatornew | Date posted: 03.16.2008 (9:53 pm)

Wall Street pundits are saying the Fed should lower interest rates by a full point at its next meeting. I think such a rash decision would be unwise and the Fed should actually think about keeping interest rates the same or lowering interest rates by a more modest amount, 0.50 at the most.

It seems the Fed has been focusing more on the stock market than the economy. Earlier this year global markets had a huge selloff when the U.S. market was closed for Martin Luther King Jr. Day. The Fed reacted by unexpectedly cutting interest rates by 0.75 percentage points the next day. It was later revealed that the selloff was caused by forced selling by Société Générale as it wound down trades related to its rogue trader Jérôme Kervie. The Fed, which is supposed to be focusing on the economy, overreacted to what the global markets were doing.

Now, with all the turmoil surrounding financial stocks (Bear Sterns in particular), analysts are calling for another huge cut. I think another big cut would be foolish for a couple of reasons and would once again show the Fed is being bullied by what is happening in the stock market. (more…)