Kass: Two Solutions to What Ails the Market

This blog post originally appeared on RealMoney Silver on Jan. 23 at 8:48 a.m. EST.

Yesterday the Fed cut its funds and discount rates by 75 basis points, the largest fed funds cut since October 1984 (when Volcker's Fed bailed out Continental Bank) and the largest discount rate cut since December 1991 (when Greenspan's Fed feared the failure of Citibank).

While the Fed's actions will have a salutary impact on the U.S. banking industry's net interest margins, throwing cheap money into the markets will do nothing to address a dysfunctional credit market and the dangerous systemic risks associated with the monoline insurance industry. Nor will dead-at-birth home mortgage market fiscal policy relief (the Paulson plan) and cheap money provide any meaningful short-term relief to the current housing depression -- or to the foreclosed or delinquent mortgages providing much of the current pain.

Policy aimed at providing solutions to the deep-rooted problems of credit and housing must almost, by definition, be more imaginative -- something that, to date, a timid and tardy Federal Reserve and Executive Branch seems unable to grasp. This is particularly true given the already levered state of our maturing economy, in general, and consumers, in particular. ...