It's bash-the-Fed day in Washington.
As good as any a time to get a full view of how awful it is to be someone who is responsible for dealing with low-frequency events ...
PRICE
Some Senators seem incensed that the Fed might have pinned a price on a deal. Seriously? Do they think that being lubricant-of-last-resort shouldn't come along with price-of-last-resort, too? (Lender-of-last-resort doesn't quite cover the circumstances, given that the firm was allowed to fail).
COLLATERAL
Same on the misgivings about the Fed's collateral. When you go to The Window, historically, you don't get a steal-of-a-deal. I'd bet odds that the Fed didn't get duped, even with the junk paper that is circulating these days in illiquidity soup.
Update: The Fed has released a pic of the assets. As expected, they aren't fools. A quick scan suggests that these are assets that are among the ones that require high levels of capital reserves, which is why JPM probably preferred not to have them on their balance sheet.
NEW SOLUTION - MONETIZE THE MERDE
Rather than waste time wringing our hands about what was done to fix a situation that Bear got themselves into, why not just "fix" the whole mess by monetizing it?
Private firms take their medicine, all the debt gets off the balance sheets, homeowners get a new lease outside of predators, and the taxpayers are on both sides of the transaction, so they don't have much risk...
M2 grew by almost $500 billion in the last year (MZM a lot less, but still nearly $200bn). The nominal size of whole problem is maybe $900-1.2 (the effective size is some steep haircut of that). A huge part of the problem could have been sucked up, already, just in the normal course of doing business, so to speak.
Sure, it's a blow for "free market capitalism", whatever the heck that amounts to, but ... life is short, too.
NEW REGULATIONS
How silly is it for Senator Schumer to chide regulators, when he himself, among others, pushed for raising to ill-advised levels the loan sizes that Fannie and Freddie can underwrite?
So make sure you get this right: OFEO increases the risk-taking capacity of the GSEs by lowering capital requirements and Schumer, et. al., increase the risk-types that they are allowed to underwrite. That's like giving a fool a bigger bucket to carry larger stones ...
In the context of market uncertainty (skittishnss) and an uncharted waters, as far as risk models are concerned, with housing prices going in reverse for the first time "ever", does that sound like Congress is dishing you up a sweet or a dud?
No, I like the Dodd-Frank proposals more than anything so far, including raising the loan limits at the GSEs to levels that simply don't make sense as public policy.
