The Fed looks to Bailout Loan Crisis: Is it Possible?

On September 18, 2008, it was leaked to the media that The Fed was in motion to put together a plan to come to the rescue of the some odd hundreds of billions of dollars out there in debt to be foreclosed on. The news resulted in the stock market making about an 800 point swing into the green, which it greatly needed after the beginning of what was going to be the worst week in Wall Street history. Today, the market remained optimistic by ending today well into the green. Is the beginning of the end of the crisis? My guess is, NO!

What is the greatest lesson we learn in our economics classes of why the banks failed during the Great Depression? It was because of the lack of confidence from consumers. The Fed has done a great job of slowing the pain by stepping in during critical times, as we saw with the Fannie and Freddie takeover, bailing out AIG, and now looking to rescue the rest. We began this week by what looked to be the beginning of the worst week we've seen in the stock market. If it were not for this news, we could have seen devastating losses, which were on the week of option expiration. We could have seen up to 3 more banks do what Lehman did last week.

This surely would have destroyed all confidence of consumers fueling this recession into even a worse state. The announcement saved us, for now. Looking at the numbers today, I do not see how The Fed will be able to embark on such a task it has laid out to do. Plus, I'm not so sure congress will be optimistic to move the risk of these failed loans from the banks to the taxpayers, who are you and I. Either way, this does not mean our economic woes are finished.

Strategist say that even if the Fed pull this off, they don't see the housing market reaching the bottom until late next year and 10-30% lower in prices. However, The Fed is determined to have something to send to congress by as early as next week in hopes to "juke" America away from all the financial hurricanes we have been faced with.

Take this news with what it seems to be. A temporary relief from a battle in the financial sector. Consider taking out a line of credit on your house to use as an emergency fund for then next 2 years. Access to equity will most likely get more difficult in the near future. Next week will tell a lot of how the market accepts this announcement long term.


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