Should the Fed 'Rescue' the Financial Markets?

"Absolutely no bail out. Let nature take its course. Let the lessons be learned and it will not happen again." - James, Florida

"The Fed has deliberately inverted the Treasury yield curve over the past year (i.e., the 10-year T-Bond yield has been below the 3-month T-Bill rate), in order to cause a U.S. recession. A recession is surely coming – and, by the way, Mr. Bernanke knows this. In many speeches he has admitted openly that the last six recessions in the U.S. (since 1969) were all preceded by an inverted yield curve and also that yield curve inversions never once falsely signaled recessions that didn’t occur subsequently. The only way the Fed knows how to 'fight inflation' is to fight economic growth, even if that requires a recession. It’s a ridiculous model, taken straight from the Keynesian playbook – but it’s the only playbook the Fed knows or follows. Bernanke is simply lying when he says the yield curve’s inversion won’t cause a recession 'this time around.' He can’t go on record admitting his real aim. So the Fed won’t – and at this late stage, can’t – 'rescue' the markets. Like an arsonist, the Fed started this fire, and for the next few months it will gleefully stand by, watching it spread further. The next bearish leg downward will come when the private markets get blamed for the Fed’s fire and the regulators come swooping in to make things still worse – just as they did in 2002."  - Richard S., North Carolina

"The Fed should rescue the credit markets since they are the cause of the whole subprime mess. Who was it that raised interest rates from 1 to 5.25% causing adjustable mortgage rates to skyrocket? There is a direct correlation between these rate hikes, and the spike in foreclosures. They should clean up their own mess!" - Andrew, New Jersey 

"Absolutely not! Market analysts are crying over the market correction which is presently occurring and the correction probably will continue for some time. The Fed should not cut rates and let the excess created by the housing bubble work through the system. Being one of the few who did not buy a house over the past six years because of irrational behavior in the housing market, I hope housing prices continue to tank. People who bought a house and are now struggling knew what they were doing and do NOT deserve to be bailed out by the Fed. I cannot tell you how many times I heard housing is the best investment because real estate never goes down... Wall Street fueled the housing craze by issuing loans to anyone with a credit score and a pulse. It is now time to pay the piper. I am only 30 years old, and I knew these problems would occur years ago when talking to people who were speculating in housing form 2001-2006 and loan officers who secured these loans for people." -  Larry D.

"For 5 years, MBA (Finance) wizards have profited handsomely armed with little else than the expertise to recognize that money borrowed at 2% and loaned at 4% creates a TSUNAMI of cash. That this flood of currency hits with devastating effect in certain (eg. subprime) sectors of the market was of little concern to the rainmakers of Wall Street. Now the 'Wisdom' of the day is that the Fed should save the market by pouring more water on it. Inflate your rafts and head for higher ground because more water is not the answer now and the EU's failed attempt to keep our markets flooded is proof." - Tom G. 

Tom "No way." - N.P.

"No way should the Fed lower interest rates to 'fix' this problem. That will just allow the lenders - who created this problem - to make more money by refinancing people who should not be in the home that they are in. Too many people knew exactly what they were doing when they decided that they HAD TO live in a $1 million home on a $500k budget! They need to sell their home, move into an apartment and save enough money to buy a home that they can actually afford." - Mark, California

"I find the discussion of liquidity humorous since excess liquidity is how we got here in the first place. I’m a mortgage broker and over the past 5 years lending products became more and more liberal, and why do you think? There was so much money (liquidity) that they had nothing else to do with it but lend it. The problem is they did not price the risk accordingly and now they are crying. They can thank the residential housing investor craze for the excess inventory and the temporary ruination of the housing market. I don’t think that the stock market needs a bail-out; poor stock market hasn’t made a record high in a few weeks but the people who risk losing their homes need help."  - Joe N.

"No way should the Fed step in and do anything. The Fed was not designed to rescue markets. They are there to set financial policy. Remember, we are still at and above 13,000. Nobody was talking about the Fed last June when the Dow was going to fall beneath 10,000 and now some three thousand points later we want some help because of a 2.83% decline in one day. Remember the old saying: the bigger they are, the harder they fall. Leave it to the American markets and the greedy traders behind them to be asking for help when we are less than 800 points away from the all-time high on the Dow. No pain, no gain." - Kevin C.

"I think the Fed should lower the interest rate. However, they will not because if the banks that hold the subprime mortgages tank, this would open the door for foreign ownership like HSBC. Maybe we should look at the Fed's intentions for NOT coming to the rescue." - Terri K.

"If only the Financials were getting their 'comeuppance' that would be one thing, and probably appropriate. However, the subprime situation is causing widespread and extensive decimation of many American households' major asset, the value of their homes. Whether they bought in 2005-06 or 10 years ago, the decrease is disastrous and unwarranted. The Fed MUST step in NOW!"  - L.S., California

L.S. California "No. The modern trader, pundit, analyst on Wall Street seems to think of Chairman Bernanke as a classical Clint Eastwood character - half preacher & half gunslinger, in and out of town to kill lots of problems and then to go away. Bernanke thinks of his role as mostly Barney Fife with his only bullet tucked in his shirt pocket and buttoned. Even then he knows he can shoot himself in the foot. Let the world markets do their jobs and Bernanke to do his. They are both doing ok over time." - TT, Kentucky 

"The bubble was caused by the Fed under Greenspan.  The Fed always does a bailout of the market and monetize the losses. The sooner the better!" - Rich, Illinois

"The Fed should not lower interest rates in an attempt to bail out the markets. If they did, they would only be encouraging the reckless behavior that got us into this mess in the first place. It would also spur inflation. They should let the markets adjust themselves back towards equilibrium, where risk premiums increase to where they should be." - Tony S., Pennsylvania

"I got the answer. No. The market will balance out on its own... The Feds will have to let it do it on its own accord and not just to bail out the market!" - John, California 

"Greenspan punished savers. Bernanke should reward them." - Roz K.

"It would be a very bad signal to the market, if the Fed 'rescued' the market. It would be the opposite! Why should I ever trust the most liquid market again, when the Fed thinks this is already the end? The best thing they can do is to express their belief in the mechanics of the free market." - Max, Switzerland

"This is not about rescuing the stock market. The stock market is tumbling because the credit market is freezing up, which is the result of the spread of the subprime mortgage mess. The credit market is like the 'engine oil' of the American economy. If the credit market is frozen, the American economy tumbles. This is serious stuff, folks. A credit crunch is almost always the precursor of a significant recession. That's why ECB took the extraordinary step today to pump in an extraordinary amount of liquidity. It's our Fed's turn, although belatedly... Their August statement (just 2 days ago) might turn out to be Bernanke's first policy blunder."  - Jun

"Absolutely NOT! Let the market take care of itself. We are just paying the price of the 1% interest rates we had and loose credit requirements of the past." - Chuck, Washington State