12/18/08 - theFed makes money free

lets look at the new historic cut in the fed rate to .25%. money has been made free. bascially, those banks covered by the TARP, if they were brazzen enough,  could pretty much lend as they like knowing that they could get bailed out again and again. but they probably will be careful lending fearing its not good to test the fed's patience with continual bad loans. but the possibility is there.

the fed is pretty much saying to americans, we don't care about your ability to save. we will pay you nothing for your savings. in some ways this seems a very progressive step. in the best of all worlds, people should spend what they need and the rest of savings should be recycled. the power of inherited wealth could be tremendously reduced. but the us has forgotten to provide any kind of safety net. 

if we had government paid health, education and pension, giving disincentives to save would be a good policy. but in the absence of a safety net, the fed's no savings policy pushes us right back into the game of casino capitalism. all of us having to chase some kind of decent return on more and more risky possibilities. the losers are predictably the elderly and retired first of all, the least nimble in the game. the winners just as predictably will again be those who can best manipulate finance by leverage and arbitrage.

nobody is really able to think about the long-term possibilities from current policies of the fed and treasury. this is the understandable reaction to actions that are unprecedented. most of us continue to work with the paradigm that the us government will extract itself from financial markets once we get the econ back on its feet. perhaps. but bank profitability is not a given in the new econ landscape. more consolidation may be required.