Is there some reason why you never read that the Fed has done a bad job here? Do you ever read that the Fed encouraged the kind of mortgages that made this problem? Think about that as Treasury Secretary Paulson gives the Fed more power, in a deal that most likely will be rejected anyway by the people in Congress -- admittedly Democrats. Futile and wrong.
We keep hearing that individuals were stupid and can't be bailed out or that the lenders were rapacious. All of that was true. But doesn't the government deserve some blame given that the President wanted everyone to own a house and the Fed specifically backed the kinds of mortgages that are wrecking the financial world?
The new thing to blame is the leverage in the system, but need I remind people the leverage involved buying these mortgages en masse. Again, the focus is on how stupid these buyers were -- they were! -- but so what if the Fed hadn't encouraged these kinds of mortgages repeatedly we would not be looking at the wrecking of Bear
(BSC)
and the obvious capital destruction in the Citigroups, Washington Mutuals and the Wachovias, or the Gang of Four insurers.
I focus on all of this because what is the difference of this plan promoted by the Treasury -- which will be defeated by the Democrats, particularly the ones who have protected the commodities exchanges from the Securities and Exchange Commission -- if it would not and does not address this crisis. Giving more power to the Fed is frightening to me because it doesn't want it and it doesn't deserve to have it.
Need I remind people that the Fed had ample opportunity to get ahead of this issue by quickly cutting rates to refinance before things got out of control. Need I remind people that the Fed has had the ability to outright purchase mortgage bonds, not humiliate institutions by making them lend them to the Fed in return to cash. And it is a humiliation. There would have been no stigma to outright buying them.
Now, here is the real bottom line: I predict the Fed will spend $500 billion to bail out the system in the end because of this problem. If the Fed had acted a year ago, it would have cost nothing.
And now it gets more regulatory power.
Sorry, it is almost comical. You give the most laissez-faire institution in the country the right for more regulation and they don't believe in regulation? You give, per se, the New York Fed the oversight and that wing had all the data I know I had when I went ballistic about this last August when there was still a chance to fix things?
Thanks, Treasury. Meaningless.
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