To Bail or Not To Bail… That is the Question!
So here we are, waiting on pins and needles for the decision that many hope will rescue the markets from themselves.
Seems like a fairly intrusive action considering that only a month ago this “crisis” wasn’t even acknowledged by the Federal Reserve who, to this day, still insinuates that the housing recession will stay mostly contained.
Why all the fervent action?
Whatever happened to the Federal Reserve being more efficient at “mopping up” the aftermath of market turmoil rather than attempting to prevent it as Ben Bernanke himself suggested back in 2002?
The risks of responding so quickly lies not only in creating a “moral hazard” for market participants as they learn to rely on the Feds rescue actions but it may possibly turn the Fed into a “paper tiger” should things continue to worsen.
This brings up another point.
It seems to me that today’s pending rate cut action (which, as of this writing, is still an educated guess as history has yet to be written) might be an indication that they really do believe their own housing containment story.
It could very well be that they STILL do not truly see the full extent of this historic housing correction.
Think of it this way, one the most significant structural changes, namely the vanishing of no-low-doc and Jumbo loans have just materialized in the last 30 days.
How is it that any expert can accurately purport to see a containment or a bottom without even one month’s worth of data showing the outcome of such a momentous change?
