The Fed's Job

Allan Sloan of Fortune says:

The Fed's job, you see, isn't to protect you and me and our retirement portfolios, or even many of the nation's largest companies and biggest employers. The Fed's job is to protect the financial system. That's why it's trying to rescue the gigantic subprime enablers while letting borrowers and mortgage companies go under.

Your collapse or mine wouldn't bother Fed chairman Ben Bernanke or the world's other central bankers. But if, say, a big German institution loaded to the eyeballs with subprime securities croaked, Bernanke and his fellow central bankers would care a lot.

Sure, we know that Ben and the boys will always bail out the biggies. And none of us - I think, anyway - wants the world's financial system to implode. But I'd feel a lot better if the Street had to pay a serious price to its rescuers--say, having to fork over a big equity stake and pay a loan-shark interest rate. That way taxpayers, who are picking up the tab for the rescue, would get paid bigtime for taking on bigtime risk.
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Well said.

Suspicious?

Some co-workers are crying blatant "insider trading" after the final-45-minute run-up in stocks (Dow from a low of -343 to -16) , the day before the Fed announced its discount rate change. I honestly hadn't thought about it [except in dismissing it as unlikely to generate any "real" recovery], but a few people may have profited millions of dollars in just one afternoon yesterday.
Likely pals of a Federal reserve official.

Below 13000

Perusing other economics-related blogs, I find some of the same sentiments I have, and it's odd none of the "professional" sites mention these theories. Probably afraid of being sued!

Dow down well below 13000 today (despite the Fed throwing in another $7B) and jitters not over yet. The only good thing is the recognition by more and more of the public that Federal oversight of banking practices is ineffective. Ditch the Fed and put Treasury secretary in charge: isn't it his job to act in an "executive" fashion to control these business practices??

Credit Crunch not exactly what I expected

I have been predicting an economic downturn since 2005, based on the lackluster "recovery" from the dot-com debacle. Jobs have never "been there" despite low unemployment, and banks [backed by the infamous Federal Reserve interest-rate hikes] have been squeezing ever more blood out of the middle class. (Who can really afford 25-30% interest rates on credit??)

Real-estate appreciation led many people to re-finance their homes as a way of getting spending cash. BUT the loans being "pushed" were ADJUSTABLE rate mortgages (ARMs), with low initial "teaser" rates but blockbuster "reset" rates nearing (or exceeding!) double digits. Teasers made it easy for buyers to qualify for loans they really couldn't afford. No one was complaining because home sales and refinancing were keeping the economy "thriving" [GW Bush, Aug 2007] So now with real estate prices at "plateau" levels (everyone who can afford one has one, no one who doesn't have one can) , the mortgage/re-fi boom is over. No more easy cash to spend on consumables, AND no way to pay the mortgage.

OK, I thought the impact would be in loss of consumer purchasing power (drop the GDP).
What REALLY happened is that the failure of these "subprime" mortgages tanked financial instruments that included them! If the loan won't be repaid, it's value is zero. How do you know how many will fail?? Hence, all the hedge funds et al can't be reliably valued and nobody wants to be stuck with them!

Different cause, same result: economic depression, possibly leading to a recession. Triggered,
ironically, by the Fed jacking up interest rates to try to cool down the economy and control
inflation. If there's a lesson here it's that you shouldn't mess with things you can't control or even fully understand! [rant off]