Wow...Wow...and WoW!

I just caught a bit of this at the bottom of the news hour on Fox.

Going to be interesting to see just what happens tomorrow morning when the stocks open.

I'm no genius at all when it comes to Bear Sterns, but I feel the Fed. should keep out it and let the chips fall where it may...I feel the same about the mortgage BS among other things over the years, let the markets work, good or bad...gov. stepping in is not what I think is capitalism...but on the way towards socialism more and more.

I knoew others that know far more than I do about all of this will chime in soon enough.... 

As all of you probably know, the Federal Reserve has been lowering the Fed Funds Rate, since September of 2007 (2 1/4% with another 1/2 to 3/4% this coming Tuesday). This is the rate that at which private depository institutions lend to other depository institutions overnight. Think of it as a intra bank interest rate.

The reason this rate is so important is that it sets the interest rate at the low end of the market. The reason that it is flucuated by the Federal Reserve is to cause the economy to pickup (by lowering) or slow down (by raising).

Besides attempting to pickup the econcomy from its recent slowing, the attempt is also to bring down interest rates at the high end such as 30 year mortgage loans, 30 year treasury bonds, etc. The reason that this has been particularly important is to help mortgage owners that are having trouble paying their loans. If they could refinance at lower rates, they may be able to continue to pay their mortgage payments.

Nevertheless, this hasn't been working. Interests rates at the high end began going down only slightly. The is important because this means that those that wished to refinance would not be paying significantly less than with their present mortgage rate.

Meanwhile, the number of defaults on mortgages along with huge inventories of new housing and resold housing continues to mount. This is important because it is causing banks and other financial institutions to own more and more of these assets that they can not resell and whose value continues to plumment.

The book value of these assets is important because financial institutions began serveral years ago to do what is called securitizing or bundling thousands upon thousands of these mortgages. This made it possible to lend to individuals that heretofore would not have been able to obtain a loan. Securitization lowered the risk of these mortgages. Of course, this risk factor remained benign so long as their value remained high and could be measured.

As the value of these securitized loans begin to be doubted the Fed swung into action. However, as I noted, their contribution to the crisis isn't working.

So, now you see a move by the Fed that hasn't been used since the depression of the '30s when it was authorized. And that is to make available to a much broader group of financial institutions the discount window while at the same time lower the discount rate 1/4%.

To recap, the Federal Reserve's Fund Rate is the rate at which banks lend money to each other facilitated by the Federal Reserve.

The Discount Rate is the rate at which banks obtain loans directly from the Federal Reserve.

What we really need is a lowering of our taxes and a dramatic cut in domestic spending. For entertainment, I received this via e-mail today:

Think about this as the politicians (especially Democrats) promise what all they are going to do for us if they get elected in the next election.

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this:

• The first four men (the poorest) would pay nothing.
• The fifth would pay $1.
• The sixth would pay $3.
• The seventh would pay $7.
• The eighth would pay $12.
• The ninth would pay $18.
• The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

'Since you are all such good customers, he said, 'I'm going to reduce the cost of your daily beer by $20.

Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free.

But what about the other six men - the paying customers?

How could they divide the $20 windfall so that everyone would get his 'fair share?'

They realized that $20 divided by six is $3.33.

But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

• The fifth man, like the first four, now paid nothing (100% savings).
• The sixth now paid $2 instead of $3 (33% savings).
• The seventh now pay $5 instead of $7 (28% savings).
• The eighth now paid $9 instead of $12 (25% savings).
• The ninth now paid $14 instead of $18 (22% savings).
• The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. 'I only got a dollar out of the $20,'declared the sixth man. He pointed to the tenth man,' but he got $10!' 'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar, too. It's unfair that he got ten times more than I!' 'That's true!!' shouted the seventh man. 'Why should he get $10 back when I got only two? The wealthy get all the breaks!' 'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor!' The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill! And that, boys and girls, journalists and college professors, is how our tax system works.

The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier. ___________________________________ 

If you can read this, thank a teacher. If it is in English, thank a Soldier. - My barber