I feel the need to rant.
What in the name of sweet benevolent JESUS ON A BICYCLE does the Federal Reserve think it's doing?
Unless you live in a cave and read papyrus manuscripts by candlelight, you know that over the weekend, investment banking house Bear Sterns collapsed under the weight of its illiquid mortgage-backed securities positions and was kindly "rescued" by JP Morgan Chase, who bought it for $2 a share. (Do not weep for JP Morgan Chase. This amounts to less than the market value of the Bear Sterns headquarters building, which they now own.)
This was a straight run on the bank: Bear Sterns' customers started pulling out funds, and the firm couldn't unwind their positions fast enough to get the cash to cover. It's probably a good thing that the Fed brokered the deal; if Bear Sterns had been allowed to go entirely Tango Uniform, a lot of their counterparties would have followed them down.
It's also more or less understandable, I suppose, that JP Morgan Chase didn't want Bear Sterns' portfolio of mortgage-backed dreck. They wouldn't be able to sell it either.
I do NOT find it understandable that the Federal Reserve chose to say, in effect, "Oh, don't worry about all those nasty subprime-based securities; we'll take them off your hands." The Fed is taking on thirty BILLION dollars worth of Bear Sterns' bum portfolios!! Bear Sterns (obviously) didn't understand them; what makes the Fed think it understands them?? Do they actually think they can hold this stuff long enough for it to be worth something?
Everyone is saying, Oh, the Fed has Saved The Day! It looks to me as if the Fed has just added a gratuitous $30 billion to the Federal debt that is already coming out of my personal taxpaying pockets, and I don't appreciate it at all. Especially in light of the fact that the Fed seems to be hell-bent on lowering interest rates again, just as soon as they can. With everybody underwater in debt, making it easier to borrow is not going to help. And I don't see any of this helping the financial markets, because they're all afraid to borrow from each other because they don't understand their mortgage-backed securities either. I explained this back in September, in Too Smart For Their Own Good, and frankly, I'd rather have been wrong. I wish I'd been exaggerating. But I wasn't.
Paul Krugman is saying on money.cnn.com that he thinks the economy will be in the tank at least until 2010. I'm just wondering how much of my retirement money will be left when it's over.