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Fed Must Buy Securities to Halt Crisis, Cambiar's Barish Says [View All]

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NeoConsSuck Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Mar-16-08 05:04 PM
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Fed Must Buy Securities to Halt Crisis, Cambiar's Barish Says
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March 16 (Bloomberg) -- The U.S. Federal Reserve must start buying or borrowing mortgage-related securities from banks and brokers to forestall an economic disaster, said Brian Barish, who helps manage $8 billion at Cambiar Investors LLC.

``The Great Depression was caused by a failure by the Fed to respond to a crisis of somewhat similar character,'' Barish, president of Denver-based Cambiar, said in an interview yesterday. ``We better get the right policy real quick or you could just have a situation that should have been a run-of-the- mill recession turn into something worse.''

Credit markets have seized up because of uncertainty over the value of securities backed by mortgages, which have already led to more than $195 billion in writedowns and credit losses at banks and brokers. The Fed said on March 11 it would start lending Treasuries in exchange for debt including mortgage- backed securities for the first time beginning March 27. Still, market confidence continued to erode, and by March 14 the Fed was providing emergency funding to Bear Stearns Cos.

Barish said the question that's ``unanswerable'' is how much of these securities the Fed needs to buy or borrow. He estimated it could be $400 billion or $500 billion. The Fed's March 11 statement said it would make up to $200 billion available through weekly auctions, and officials told reporters the program may be increased.

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So, these worthless pieces of junk, that were created by investment bankers, for investment bankers to make them rich, are now worthless, so the Fed (American taxpayers), should now buy and own them??

This is another case of privatizing the profits, but socialize the risks. Were they clamoring for the Fed (American taxpayer) to buy these risky investments when they were creating windfall profits a few years ago? Of course not.

The golden rule of capitalism can be summed up as: Don't meddle in the free market system, unless the capitalists start losing big time, then the American taxpayer should be forced to bear the brunt of their bad investments.
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