http://www.elitetrader.com/vb/showthread.php?s=&threadid=120843&perpage=6&pagenumber=2 Kudos to peilthetraveler for his most insightful post!
So true. It seems to be the "intellectually accepted" notion here on ET (and elsewhere) that the Fed and Washington should just stand pat in true laizzes faire style and just watch as the banking system melts down. peilthetraveler nailed it 100% IMO. This is not about "bailing out Wall Street's fat cats", this is about averting a potentially decade long depression that would hurt both Wall Street and Joe Average.
And yet not one of these posters that keep harping on how the FED has been dramatically easing monetary policy can tell me why it is that the Fed Funds rate is still trading above the yield on the 2 year Treasury note . . . ( 3.0% vs 1.6% ). Go figure.
Thank you. I really think that they should make Econ. 1 mandatory in high school these days. Given what I have been reading here on ET the last several weeks, this clearly is not the case.
I think a lot of the disconcerned feeling around here has to do with morality and the breaking down of free market capitalism. Everyone in the right mind know s socialist markets are horrible and that is the road we are embarking on.
<i>"Too little too late. Of course hindsight is 20/20, but it was the banks and the fed and their "easy money" that got us into this mess. And yes all those people who bought things they couldn't afford are responsible, but the fed created the "crack" i.e. easy money and everyone smoked it and became hooked. No easy money = no crack heads! This injection of 200bn is like a cash advance on your Visa to pay off your Mastercard. This could buy you some time and may be needed if you are without a job, income source, etc. But eventually you have to change something FUNDAMENTALLY to make it work. This is an ABSOLUTE MUST!! This will not change anything except WHEN we must face the music, HOW LONG we must face it for and the SEVERITY of said music."</i> Now that is the emmy-winning post of this year. Yes, it's admirable that the Fed is focused on saving our U.S. and ultimately global banking system. Where the (he)ck where they for the past several years when plenty of people publicly screamed for a change in policy <b>before</b> this mess was created? A blind flippin' idiot could see the credit-card leveraging of all financial markets from 2002 lows to subsequent highs. What did all those Fed efforts thru that time yield us here in the U.S.? Outsourced jobs, exported manufacturing and a bankrupt import/export GDP. Thanks for your time on watch, Greenspan & Bernanke. Well done, thou good & faithful servants to the trickle-down theory. Our wealth trickled right down into numerous foreign pockets, and stayed there. Our wealth is now represented inside the new Forbes wealthiest list. The sudden rash of billionaires are eternally grateful for the housing = stock market = oil = commodity bubbles. So are the cronies at GS, BS and other banking houses who paid out obscene, vulgar bonuses for the creation and churning of fairy-tale debt with AAA labels slapped across them. ** Admirable what the Fed is doing now. Too little, too late. Watching this process must be lie witnessing someone trying to patch a femoral artery bleed with a butterfly band-aid. Apply enough pressure, maybe it'll work. We haven't seen inflation / deflation yet. Wait until a summer season of $4 gallon gas, $6 hamburgers and accelerated layoffs instead of hirings. Give it until the 3rd and 4th qrtr earnings seasons of 2008... we'll see some things before New Year's Day 2009 that few people in this country can remotely fathom.
You mean like Norway where per-capita GDP is the second highest in the world but the government controls 31.6% of publicly listed companies . . . or are you talking about the FREE market economics of allowing sub-prime loan portfolios to be leveraged at a 33:1 ratio? As long as the United States continues to spend, spend, spend and have one of the lowest savings rates in the world ( the U.S. savings rate was NEGATIVE for the ENTIRE year of 2005, the first time since the Great Depression ) the economy will continue to depend on capital creation that comes from the FED. It's as simple as that.
fractional reserve banking is like nuclear power, it demands government involvement when there is risk for the population. it would be great if the free market could solve this but history shows that it cant. im all for the free market but a banking system on this bad of shape needs intervention just like a massive episode of ebola would
I agree in principle. Still, the question remains: What do you do after the US banking system is already in a huge mess. What medicine is better for the overall well being of the nations economy over the next 5, 10, 20 years... the capitalist or the 'socialist' one? The scenario the Fed is clearly playing is to aggressively try to avert a systemic meltdown of the banking system (not 'fixing' a credit bubble, it's too late and that's not their job) while the markets take care of the bad debt over the next couple of years (write offs, refinancing). Once the banking system shows signs of being revitalized and the economy shows first signs of stabilization (NFP, ISM, consumer confidence) the Fed will have to hike aggressively in order to avoid inflation creeping into unit labor costs, as outlined by Mishkin numerous times.