The Fed is considering "unconventional" ways to avert a credit contraction, i.e. to keep pumping up the debt bubble, the WSJ reports today. They are looking at lending directly to non-bank financial institutions (I wonder, will my daughters' Piggy Savings and Loan qualify?) and buying bonds and mortgage-backed securities issued by FannieMae and FreddieMac (Mack the Knife's mortgage doesn't qualify - yet).
The Fed's desperate attempts at keeping the debt clunker going reminds me of those 1950's american cars in Havana held together with spit and bailing wire. While they frequently look quite nice on the outside, their guts have been almost entirely replaced with a hodge-podge of spare parts, usually of soviet-era provenance. Going over 20 mph in them is akin to a death wish.
If the Fed has its way - a GSE here, a private equity loan there - it will soon turn itself into a Havana Special. Oh what the heck... consider it environmental finance: recycling of garbage debt into tax dollars.
Update: Just a couple of hours after the above was posted the Fed announced its actions They are summarized in a Reuters article carried in their front page under the apt title "Floodgates Opened". Watch out we don't all drown...
One final thought: I have always been an advocate of "Don't Fight The Fed". But this is no longer my daddy's Fed - not even my own Fed. Instead of taking away the punch bowl, they keep on spiking it with as much rum as possible. How many cheap mojito specials can the Havana Fed serve up, before we all end up on the floor? Or it goes bust itself?