CNBC: Fed Rate Cuts are Helping Economy, Not Credit Crisis

These type of stories are what make me think that the "end game" of direct government intervention into the mortgage market, in some form, is beginning to get priced into the market. I can't wait to see Paulson's face when he is forced into this hand after denying this has any chance of happening for 3/4 of a year now. Your tax dollars - once again, hard at work.

All I know is I keep using words like "extraordinary" and "unprecedented" in this blog for the types of things we are seeing. I guess if I was a blogger in the 1930s this would be old hat, but for most of us, this is an entire new era of government interference. I can only imagine the nefarious behavior that will be borne of this in 4-5 years. We are turning into a Banana Republic and now officially have no grounds to subject other countries in this world to our condemnation when they do the same things we are about to do, to bail out their economies.

• The size of the Federal Reserve’s expected interest rate cut this afternoon may help stimulate a sluggish economy. But like the several cuts before, it is unlikely to unfreeze the credit markets, especially the mortgage one.
• And as the Fed continues to use its conventional fire-fighting equipment,there’s a growing sense that extraordinary--and somewhat controversial--measures may be needed.
• “The Fed by itself will not get us out of it," says John Irons, research director at the Economic Policy Institute. “We need to combine fiscal stimulus with monetary stimulus.” Among the ideas now emerging are a new fiscal stimulus measures, specifically targeting the mortgage market, and the possibility that a bailout of both business and consumers may be inevitable.
• It may also be no coincidence that the Fed last week took the unusual step of creating its so-called Term Securities Lending Facility, allowing it to take up to $200 billion of non-Treasury securities, including federal agency backed mortgage securities and mortgages, as collateral for up to 28 days. “It’s probably an admission that federal funds will not be enough," David Resler, chief economist at Nomura International, said at the time. Reseler considers the lending facility, the “most significant policy initiative since the credit crisis began last August.”
• But it may be as far as the Fed can go. Federal law prevents the central bank from buying mortgages outright. Congress, of course, could change that, or otherwise, empower another arm of the federal government to do that. (Bingo!)
• “The most effective way is to create some way so the federal government can force a markdown in some of these mortgages and take them on itself -- say through some sort of bank -- such that the government becomes the holder of mortgages," says Irons.
• This time, the government’s efforts are arguably ill-conceived and misplaced, say economists. The $172 billion stimulus package is likely to provide little of a boost. It contains one-off tax cuts, which typically lead to consumers saving the money, and lacks traditional measures such as an extension of jobless benefits and infrastructure spending. Most importantly, it does not address the slumping mortgage market.
• On Capitol Hill, House Financial Services Committee Chairman Barney Frank is the latest to push the idea of federal intervention and support, through some sort of loan guarantees.
• “I think it is an issue of the financial system overwhelming the rest of our U.S. economy,” Vanguard founder John Bogle told CNBC. Bogle, for one, seems to be worried about the Fed's own balance sheet and sees taxpayer money at stake. “They can't do everything,” he said.
• In a presidential election year, however, it may be more politically desirable -- as well as easier -- for the Fed than for the Congress to throw good money after bad.
• Much like the debate over the Fed’s role and the idea of moral hazard, an argument whose intensity has waned as fear of the credit crunch has heightened, hand wringing over an outright government bailout may turn into an open-hands expression of helpless inevitability. (Bingo!)
• At this point, the moral hazard issue may be solely “theoretical,” as Irons puts it, because we are “stuck” with the credit crunch and a bailout. “This is a once in a generation thing,” (no, it's not - it now happens every 6-8 years as we go into bubble/bust/kick can down the road/rinse/wash/repeat - I am so sick of hearing this once in a lifetime crapola - just like the tech stock bubble was once in a lifetime, and the coming commodity bubble will be a once in a lifetime thing, right? It's the system stupid - tails we win, heads we win - corporate America paid for by Congress)

Bailouts... coming to a theater near you this summer (or earlier)