Saturday, August 11, 2007

Failing the Fed

Failing the Fed Test:
"'My people have been in this game for 25 years . . . They are losing their jobs': I thought Wall Streeters were paid big money because they took big risks. Capitalism, etc. But when those risks actually materialize, and the Wall Streeters are actually threatened with large losses that might change their lifestyles, Jim Cramer shows up to demand that the government bail out his friends. "
I have been amazed that the Fed is pouring money into the market to slow a problem that they created in the first place. It is amazing that first, banking regulators demanded that loads be made to people who, frankly, could not afford it. Then the banks turned to extremely risky configurations and now act surprised when the party is over.

The thing is, the Fed has bailed out many such activities as these so many times, that the big banks and financial institutions make even bigger bets the next time knowing that the Fed considers them too big to fail.

This is the downside to having a Fed. Perhaps the Fed should allow a few banks to fail and just cover ordinary people with FDIC insurance. That would set things right for a change.

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