Wednesday, March 12, 2008

Rich Man's Capitalism

Market is up 400 after the Fed agreed to knowingly back bad debt.
Hoping to ease the credit crisis, the Fed -- acting with the European Central Bank, the Bank of Canada and the Swiss National Bank -- agreed to loan investment banks money in exchange for debt, including slumping mortgage-backed securities.

The idea is to create a market for assets that investors have recently been too scared to buy. That freeze in demand had sent asset values plunging and caused huge losses for some of the world's biggest banks.

After a series of hefty losses in stocks, the market hopes the central banks' decision Tuesday might be more effective than previous moves -- like rate cuts, which had led to initial stock pops that later fizzled.

"It's not just a rate cut. I think it's a very creative way to do financing," said Anthony Conroy, managing director and head trader for BNY ConvergEx Group. "It shows the Fed is willing to do things that are a little out-of-the-box to shore up credit issues. I really think they went to the heart of the issue."

Wall Street's version of capitalism: privatize the profit, socialize the cost. No consequences for bad risk taking -- the rich get richer and the rest of us pick up the tab. It's not like the Fed is loaning money against good paper... the Fed is loaning money against paper they know is bad.

But hey -- social security is eeeeeevil!!!

All of the talking heads on the teevee seem to think this is super fabulous but it's leaving my blood boiling. At one time I would have agreed that it was important to keep the macro-economy flowing at any cost but now I think we're just aiding and abetting a system that benefits a few at the expense of many.

The investment banks are bailed out but thank God the regular Joes who made bad mortgage choices can still be properly chastised and beaten. Someone's got to be made to pay for this moral outrage, after all. Fortunately we rigged up the bankruptcy legislation good and tight to ensure they'll suffer properly for their sins. Yay! Feel better?

p.s. Funny how this great idea came about just as Carlyle Group was starting to feel the pain.

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