So it's official. The Federal Reserve is bailing out the people that took out bad loans and the banks that financed them. Yesterday I thought that perhaps the Fed would do the smart thing and hold steady. Sure, that would've caused a temporary disaster, but at least it would have been only temporary. However, rather than let the subprimers take their lumps, the Fed opted for a bailout.
As most of you know by now, the Fed has lowered the Fed Funds rate a half point to 4.75%. (Read the Press Release HERE). The markets went crazy! The Dow surged over 300 points. To me, the more significant teller about the Fed's thinking is that the Fed lowered the Discount Window rate a half a point as well. The new Discount Window Rate is 5.25%. Remember in my earlier entry about how I said that this Rate is for emergency funds in case banks need it. This is just speculation, but is it possible that Ben Bernanke and the entire unanimous Fed Reserve Board, see the credit crisis getting worse before it gets better. Why else would the Fed feel the need to perform such a drastic bailout. The change in both rates is like a fire break trying to contain a forest fire.
I hope it works, however I'm feeling more bearish by the day. The Fed feels that a bailout is more important than containing inflation. What price is oil again?
Over $81 a barrel.
Let me say that again: Over $81 a barrel!
How is inflation not a problem at these prices?
Worry less about the markets and more about inflation.
Let the markets fix themselves.
This bailout is bad policy.
I've gotten myself all worked up, but that's it. I'm done ranting about this for today. I think I'll do an entry for the Financial Tools section of the blog tomorrow. Thanks for reading and drop me a comment please. ------Sincerely, Trevor Stasik
Fed Funds Rate, Discount Window, Bernanke, Subprimers Bailout