Will the FED cut rates now?

[shotgunner]

Would anyone be surprised to see the FED hold an emergency meeting and cut rates by .25 to .50 basis points in the wake of the failure of the bailout bill?

 

[2B]

I doubt it would do any good.

 

[ziggy29]

I don't think a Fed rate cut would do anything to eliminate the constipation in the credit market. It's no longer about whether borrowed money is cheap but whether lent money will be repaid at all.

Plus, recklessly low rates under the Greenspan Fed was one of the primary culprits that led to the current mess.

 

[FinanceDude]

I don't think a Fed rate cut would do anything to eliminate the constipation in the credit market. It's no longer about whether borrowed money is cheap but whether lent money will be repaid at all.

Plus, recklessly low rates under the Greenspan Fed was one of the primary culprits that led to the current mess.

Much as I am NOT a Greenspan fan, I think in many respects he was TOO SLOW to react to economic issues and either cut too much or not soon enough.

Of course, "Bailout Ben" is worse, he listens too much to the folks on Wall Street..........

 

[REWahoo]

It's all Greenspan's fault. Really.

 

[ziggy29]

Much as I am NOT a Greenspan fan, I think in many respects he was TOO SLOW to react to economic issues and either cut too much or not soon enough.

I think that's part of it. He waited until too late in the business cycle to change monetary policy, which help induce more violent boom and bust cycles -- and led to going overboard with rate actions in response to exaggerated economic peaks and valleys.

Without Easy Al's excessive easing, many of those ARMs starting at 3% can't happen. And without those mortgages, fewer people could "afford" to buy a home (more correctly stated, could temporarily afford the payments on it) and maybe the bubble doesn't rage out of control. I have little doubt that if the only loans available were conventional fixed rate mortgages at (say) 6%, the bubble doesn't form. And without a bubble, we likely don't have this bust.

Essentially, it was the enablement of greed.

 

[W2R]

Has Greenspan made any public comments on the bail-out plan? That would be an interesting perspective to contemplate.

 

[FinanceDude]

Has Greenspan made any public comments on the bail-out plan? That would be an interesting perspective to contemplate.

I think he is in the same bomb shelter as Dick Cheney........

 

[REWahoo]

Looks like he may be hiding in India: Greenspan, Shultz argue for quick bailout action | Business News | Reuters

 

[retire@40]

Cutting rates wouldn't help. The systemic problem is in the credit business.

For example, what's the deal with "no-income verification" (NIV) loans? I know people with good sources of income and collateral that couldn't get a loan because of a technicality while people with with no sure source of income qualified for NIV loans.

The banks allowed people to refinance properties they could not afford in the first place.

And, I also place the blame on the guy who bought a house without knowing its real value and knowing if he missed a paycheck it could be doomsday for him.

Everyone kinda knew there was no logic in the mortgage and credit business, but they kept playing the game as if nothing would ever happen.

 

[FinanceDude]

For example, what's the deal with "no-income verification" (NIV) loans? I know people with good sources of income and collateral that couldn't get a loan because of a technicality while people with with no sure source of income qualified for NIV loans.

The two KINGS of NIV loans were Countrywide and AmeriQuest........

And, I also place the blame on the guy who bought a house without knowing its real value and knowing if he missed a paycheck it could be doomsday for him.

Well, Congress is placing NO BLAME on those folks.........

Everyone kinda knew there was no logic in the mortgage and credit business, but they kept playing the game as if nothing would ever happen.

It was the mortgage brokers moreso than the bank loan officers that did it. The bank officer was limited in their underwriting sources, while the broker could go to whomever would write it with the LEAST amount of documentation........

 

[retire@40]

...Well, Congress is placing NO BLAME on those folks...

That because it's not politically correct to blame stupid.

These people went sailing in a ship knowing it had holes in it's hull while smart people stayed home.

Now the smart people have to jump in the ocean to save them whether we want to or not.

 

[ziggy29]

That because it's not politically correct to blame stupid.

These people went sailing in a ship knowing it had holes in it's hull while smart people stayed home.

Now the smart people have to jump in the ocean to save them whether we want to or not.

That's the utterly infuriating thing about this. Some people go on a spending binge much like a drinking binge, but EVERYONE suffers the financial hangover -- not just the bingers whose behavior led to it.

Makes you wonder why we bother to be responsible sometimes. It doesn't seem to bring any rewards...

 

[Steve O]

I think a big part of this whole mess is that people thought home prices were just gonna keep on going up and up and up!!!

 

[ziggy29]

I think a big part of this whole mess is that people thought home prices were just gonna keep on going up and up and up!!!

And why was this irrational exuberance in place? I'd say it was the increasingly easy money that led to lower ARM rates which led to lower monthly payments which led to higher "affordable" purchase prices which led to higher prices. Rinse, lather and repeat until the easy money dried up...

 

[OAG]

Welcome to the "gotta have it now" American Society. Save for a down-payment on a house - NO WAY. I want it now! Save for a decent car - NO WAY. I have to get a new car when I graduate HS. $25,000 Honeymoons - on the VISA Card, Yes, of course, that is what they are for. Kitchen forget it - We eat out 7 times a week (on the CC of course). What do you mean, I can't have or can't use my HELOC now; WTH "they" reduced my CC limit - this is un-American. Vote that bailout plan I am in debt "up to my eyeballs" I need a fresh start.

 

[W2R]

Looks like he may be hiding in India: Greenspan, Shultz argue for quick bailout action | Business News | Reuters

Thanks, REW! It sounds like he is 150% on board with the bailout plan. Interesting that George Shulz is quoted as being on board as well.

I know that Greenspan wasn't the god-like figure that many regarded him as being, but it is certainly sobering to see that so many financial experts are agreed and back this bailout.

As for me, I am no economics expert. One of my ER goals and interests will be to learn more about economics and finance, but as for now, I am just a scientist and far too ignorant about these topics. To be honest, I don't know what to think about the bailout (except that I don't want to pay for someone else's McMansion for them while they thumb their noses at me). But the fact that all of these guys agree makes me think that they are probably right.

 

[REWahoo]

One of my ER goals and interests will be to learn more about economics and finance, but as for now, I am just a scientist.

With a desire to become a 'dismal scientist'? Surely you can aspire to something more worthwhile...

 

[ziggy29]

Welcome to the "gotta have it now" American Society. Save for a down-payment on a house - NO WAY. I want it now! Save for a decent car - NO WAY. I have to get a new car when I graduate HS. $25,000 Honeymoons - on the VISA Card, Yes, of course, that is what they are for. Kitchen forget it - We eat out 7 times a week (on the CC of course). What do you mean, I can't have or can't use my HELOC now; WTH "they" reduced my CC limit - this is un-American. Vote that bailout plan I am in debt "up to my eyeballs" I need a fresh start.

I've said it before and I'll say it again -- I'm not convinced it's a coincidence that this started happening again after the Depression generation began dying out, and there were few cautionary voices left to remind us to heed their experience and avoid repeating those mistakes...

 

[W2R]

With a desire to become a 'dismal scientist'? Surely you can aspire to something more worthwhile...

I am getting there, I must admit. Last year I was thinking it would be neat to pursue a graduate degree in finance, after ER. But earlier this year I started thinking maybe just a course or two would be more than enough. Actually, my aspirations are turning more and more towards sleeping in and then lazily puttering about the house all day, rather than getting up early to go to work on another graduate degree.

 

[Khan]

I've said it before and I'll say it again -- I'm not convinced it's a coincidence that this started happening again after the Depression generation began dying out, and there were few cautionary voices left to remind us to heed their experience and avoid repeating those mistakes...

Isn't that part of the the hypothesis concerning the Kondratiev Wave? That every 50 or 60 years people/society have to relearn the same lessons?

 

[audreyh1]

I've said it before and I'll say it again -- I'm not convinced it's a coincidence that this started happening again after the Depression generation began dying out, and there were few cautionary voices left to remind us to heed their experience and avoid repeating those mistakes...

Not only that. But here almost 80 years later from 1929, regulations and controls instituted after the Great Depression and helping keep excesses and recessions from getting too bad in the intervening 75 have consistently been pulled out. Folks didn't think they were "needed" any more. 1999 - repeal of the Glass-Steagal (sp?) Act.; 2004 - permission by SEC for the larger investment banks to use leverage well above the prior 12:1 limit; 2007 - suspension by the SEC of the "uptick rule" for shorting stocks, as well as lack of enforcement of naked shorting; also 2007 - investigative reports indicate that the SEC basically quit monitoring and regulating investment banks.

I think we were victims of our own success. With the lack of a truly economically crippling crisis in the last 75 years, people started to believe that markets could operate unregulated and unfettered and it would somehow be even better to take the controls away. Instead - what happened - oh yeah, unfettered capitalism went right back to the old excesses motivated by short term greed: excessive leverage, pushing "risk" to other parties for the short term gain of fees, increasingly complex financial transactions, taking excessive risk, etc.

Clearly the voices who preach unfettered capitalism, "let the markets work themselves out" don't remember what the world was like in 1933 and the 100 or more years before.

I sure hope we get back to sensible regulation. We had sensible regulation once upon a time. Sure, a "shadow" banking system grew up which tried (and succeeded in many ways) to work around the regulations, but that just meant we needed to keep up with the new system. The insane mortgage lending was a giant red flag. Anyone looking at it could see that things could only end badly - but not a hand was raised to stop or slow it down. This complete lack of questioning or action or stepping up and saying - something is not right here is what amazes me. I honestly can't believe that Alan Greenspan or someone else monitoring our Financial System didn't campaign for some level of sense in mortgage lending.

Audrey

 

[Gardnr]

Has Greenspan made any public comments on the bail-out plan? That would be an interesting perspective to contemplate.

I think he's lost a lot of credibility and anything he says has to be looked at through the lens of him trying to prop up his "legacy" as Fed Chairman.

History will judge him quite differently than as the all-knowing, savior of the economy that he was hailed as several years ago.

 

[audreyh1]

Yes, Greenspan presided over the worst of the excesses of the 2000s, and all he had to say was that consumers were "smart" to by using ARMs implying that interest rates would be kept low for a long time. One of the most irresponsible statements a Fed Chair has ever made IMO.

Audrey

 

[REWahoo]

It's all Greenspan's fault. Really.