Interest rates chronically at zero, while borrowing is still relatively low, leaves an excess of underperforming liquidity in the economy. Having some of that reined in might give the inflation they’re so fond of a tickle. Or not. What do I know?
Remember how Paulson and Bernake forced BoA’s shareholders to take on Merril Lynch, “or else”? This is the same damned thing. Treachery... the whole thing... END THE FED.
Uhhh... this sounds like a good thing to me.
I was stunned that the government (i.e., taxpayer) made the debtholders, and even the preferred shareholders, of the banks whole.
If a normal business goes belly up, the bondholders wind up owning the business, because the equity has been wiped out, and the bondholders have not been paid. How is this differnt?
The economy cannot function for long when government suppresses the time value of money to nearly zero.
The moral hazard of banks engaging in reckless or dishonest behavior is guarded against by regulatory oversight and loan loss reserve requirements. The Fed proposal makes sense because it is easier and cheaper to raise such reserves by borrowing instead of by issuing new equity and having Wall Street pocket a large slice of the proceeds in underwriting fees and share allocations.