Let me see if I understand this: The problem is, institutions lent money to people that couldn't afford it., so now they are tightening their requirements, making money harder to borrow. So now The fed is lower lowering rates so institutions will make less on the money they do finally lend out. How exactly does that help the economy ... (in the short term) or is it just my common sense getting in the way again.
The fed is making the money banks borrow from themselfs cheaper. The banks borrow cheaper, and lend higher. They lend higher because they have tightened their lending standards wink wink. All because they lent in the first place to risky borrowers, so George Bush could stand before the nation in late 2006 and say " more americans own their home now then ever before. This was right before the big election in 2006 and republicans were trying to juice the economy to get re elected. Now its all a big mess!