Jason Monastra

My life and thoughts out on the web

So in the one of the more anticipated Fed meetings recently, there was a decision to keep the key lending rate the same.  The article from www.cnn.com read the following:

NEW YORK (CNNMoney.com) — The central bank left its fed funds rate at 2% despite increased hopes for a rate cut. Wall Street wanted a cut in order to help ease the pain in the financial sector and restore investor confidence.

The Fed’s policymakers acknowledged the deepening problems facing the nation’s financial markets in a statement. But the Fed added that it believes rates are already low enough to spur future economic growth and that despite recent declines in commodity prices, such as oil, the outlook for inflation remains uncertain.

I was in a general discussion yesterday concerning the Fed’s purpose and direction in their decision making.  It appears to me that the focus of the Fed has moved and somehow gotten off course.  The purpose of the Central Bank is simple, to head off and curb inflation.  With that being the case, how is it that the credit market has somehow become the Fed’s new baby?  Markets have a tendency to correct themselves as the basic fundamentals of business eventually balance causing the return of fair pricing and stability.  However with the movement of the Fed as a policy maker in the credit market, this causes a whole new ripple in the market. 

Government in the US has become far too reaching, and this is just an added piece to the building of the government intervention arm that will continue for years to come.  Fast forwarded if Obama is President.  When did “bail outs” and government funded acquisitions become part of our economic policy?  The model in which most financial companies used to evaluate their risk was wrong.  The weight and impact of an implosion on the credit market was undervalued and we are seeing, and reaping, the great effects that can be shown when solid business fundamentals are thrown out for the purposes of a short term buck.  It has, and will always, come back to cost more than the short term gain.  Our relief efforts to curb the implosion only go to show the errors of our ways.  Simply allowing for poor decisions to be masked in an attempt to keep things status quo.  Where are the ramifications?  Tighter credit markets?  Please.  The credit markets are too tight and frankly have been in certain areas for some time.  Lending in the housing sector was tilted, giving money to anyone and everyone with a hand out.  But lets look at small business?  Where are they in the mist of this?  Small business loans and growth in that sector are the life-blood of the US economy.   With the credit issues, the effect has tighted even the most successful of businesses.  And for what?  So our govenment can bail out the people that made the decisions that placed us here and punish those still trying to innovate.

Regulation is needed…more importantly risk management.  The ability to forsee issues is not a science but their are risk models that work and allow for a sobering picture of what could be should reckless behavior be allowed to penetrate all areas of our financial system.  However overall government intervention and the idea that Wall Street thinks someone should just bail them out is ridiculous.  Have a bite of that cake you guys have been serving for the last 7 yrs….