Speechless
While I’ve been pointing out the weaknesses in our financial system and housing market for some time, I’m a little overwhelmed of late by all of the Federal Reserve’s surprise, emergency actions to keep the financial house of cards from falling down.
This weekend they orchestrated the purchase of Bear Stearns by JP Morgan Chase for the bargain basement price of $2 share. Last year, Bear Stearns was selling for over $150.
Tomorrow the Fed is set to lower interest rates again and I’m expecting a full percentage point, if not more. All these emergency moves by the Fed are certainly not doing anything to give people more confidence in the markets. I don’t know how many more surprises we can handle.
The Fed, in a bold action on Sunday, agreed for the first time to let big investment houses get emergency loans directly from the central bank. The new lending facility — similar to one that’s been available to commercial banks for years — started Monday and will continue for at least six months. It marked the broadest use of the Fed’s lending authority since the 1930s.
Also Sunday, the Fed approved a $30 billion credit line to engineer the takeover of Bear Stearns.
Senate Majority Leader Harry Reid, D-Nev., was critical. “The Federal Reserve’s latest actions appear to shift large risks to taxpayers, who may find themselves on the hook for billions in worthless securities.”
Countered Paulson: “Bear Stearns had a liquidity crisis, and so we felt it was very important that this be resolved as a way to minimize impact on our economy … This is the right outcome.”
I have pointed out before that the job of the Fed is to protect the banks even at the expense of the taxpayers. In taking on all the securities of questionable value, they are taking the risk out of making bad loans and putting it on the taxpayers. But if they don’t, some of the huge financial institutions will collapse taking many sound, honest businesses with them. It seems no matter what they do, we’re going to pay.
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