Bail Outs: Fed Steps in Manure, Calling Into Question Its Competence

The Fed had no choice but to bail out Freddie Mac and Fannie Mae.

However, WHY did the Fed have no choice?  It is because Fannie Mae and Freddie Mac were the CNETRAL PLANNING approach to helping people get mortgages without consequences to the Federal budget.  They were "quasi-governmental" organizations set lup basically to control a large part of the mortgage industry.   If you don't know what a "quasi-governmental" agency is, you are not alone.  NO ONE does, in this context, and they should hever have existed.  Congrress had no clue what they were doing when they set up Fannie Mae and Freddie Mac DECADES AGO (nothing to do with President Bush). The idea was that these strange, "hybrid" companies would provide a morgage market (buying mortgages from the original lender, allowing the lender to make a new loan and get out from under the old one, in an endless sequence).

This meant that Fannie Mae and Freddie Mac ended up FINANCING most of teh mortagages in thsi country--the kind of central planning concept that ALWAYS fails, because there is no flexibility when things go wrong.  Since these "companies" controlled so much of the mortgage financing "market", they could not be allowed to fail.

However, the Fed is EXPANDING the idea to brokerage houses, hedge funds, and who knows what else.  The Fed refused to let Bear Stearns fail.  There are reports tonight that the Fed will take action to "broker" a purchase of Lehman Brothers, another brokerage/financial services firm like Bear Stearns.  Where does it all end?

Well, it ends right HERE, right NOW for me.  I can tell you that I OPPOSE the Fed doing ANYTHING (beyond its normal receivership and damage control functions) to stop Lehman Brothers from going under.  That means NO BROKERING.  It means NO Federal (taxpayer) guarantees.  Further, it  means I will NAME PEOPLE in the Fed who mess this up if the FEd continues doesn this road.  This idea that the Federal Government in general, and the Fed in particular, need to step in whenever there is a possible conomonic "problem" presented by a possible business failure is a DANGEROUS thing.  The auto industry is already lining up for Federal "guaranteed" loans, and the process seems to be accelearating.

Nope.  I don't buy it.  And I will NOT forget where it started--with which politicians and which Fed officials--including the Fed Chairman and Secretary of the Treasury. 

Yes, even these Congressional "bail ots" of "housing", and people in danger of foreclosure, have more to do with bailing out LENDERS than homeowners.  In the long run, this will probably do more damage to the eoncomy than doing nothing.  Notice that the worst lenders, and the stupidest financial services firms, are going under ANYWAY.  Now we "have" to bail THEM out (really the bander's FRIENDS dealing with them) on top of bailing out the homeowners.  I prefer bailing out the hoeowners to this stupidity, and I am willling to tell the Fed Chairman so.  What if our economy cannot STAND Bear Stearns or Lehman Brothers failing?

No. 1:  I don't believe it.  No. 2: If so, that is just an admission of FAILURE by Congress, the President, the Fed Chairman, and all of these "smart" people in Wall Street.  It would suggest a complete overhaul of our financial system to make it more decntralized and less subject to cascading failure from individual failures.  That would. logically, mean THROWING THE PRESENT BUMS OUT--including ALL of Congress, the Fed Chairman, and ALL of the Wall Street frims CEO's. 

Do you want to know what I REALLY thinnk of the Fed "borkering" a sale of Lehman Brothers.