Friday, April 11, 2008

Money well spent (we promise)

Former vice chairman of the Federal Reserve board, and DC fixture Alice Rivlin gets some quality time in the Grey Lady.
ONE benefit of the Federal Reserve’s rescue of Bear Stearns is that public outrage has aroused the political system to action in mitigating the foreclosure crisis.

Never mind that the supposed conflict between Wall Street and Main Street is a false one — Main Street runs on credit and cannot prosper if the financial system is in shambles and credit dries up. Never mind that the supposed Fat Cat “bailout” was a disaster for Bear Stearns stockholders, and that the idea of a “moral hazard” risk — that other investment banks will be tempted to emulate Bear Stearns — is preposterous. Never mind that if markets head back up and the collateral can be sold at a profit, taxpayers may lose nothing.
Just the two opening paragraphs make my mind boggle. Has there been public outrage over the Bear Stearns bailout? Apart from some crank postings on the Internet, I don't think Joe Q Public has any idea what did, or did not happen, with BS.

And is there really no conflict between Wall Street and Main Street? Do we really think that Main Street digs these ludicrous Wall Street financed swings in the business cycle? Loaning money is Main Street firms is a small, thin margin business, and not an accurate description of what Wall Street does, and why it gets paid the big bucks.

Senior ex-Fed officials calling the idea of moral hazard "preposterous" raises interesting, and troubling questions about the Federal Reserve.

The whole thing meanders on, and it even includes a "what about the children" crie du couer. I'm not sure who the article is written for, but she's arguing that investment banks should let themselves be regulated by the Fed (but not too much) in exchange for the Fed giving them taxpayer money.


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