The market reacted to the Feds half point cut rather vociferously today. Don't those traders read the horrible news about the foreclosure rates? What kind of irrational exuberance cheers the market when we all know that the record foreclosure rates of August will surely be surpassed in September and October and... well, who knows?
The House rose to the bait with even more alacrity than did Bernanke, tossing in $300 million in low income grants - undoubtedly 'for the children'. I can understand members of the House having difficulty understanding the concept of 'moral hazard'. After all, neither dead girls nor live boys are involved. Bernanke is another matter. 'No pain' bailouts draw additional risky behavior as a light draws moths. The Fed really isn't supposed to be so easily suckered and they might have waited for at least one big lender to go down the tubes before wading in.
I would have to imagine that the clever lads who came up with the concept of the 'no doc' mortgage are already working on another clever scheme. That one will undoubtedly be the 'real' Black Swan.
David Stockman's Contra Corner
59 minutes ago