Last weeks actions by the Federal Reserve were not done in a vacuum.

Wall Street is desperately searching for a bottom in the credit markets so they can get back in. They know that their shareholders will be very upset if they deploy major assets before the market gets it legs.

And most thought that Washington was going to come through after months of rhetoric on the subject. But with Presidential elections on the table, partisan bickering taking center stage, and few wanting to compromise, government action on the foreclosure crisis in the credit markets has not been forthcoming.

This forced the Federal Reserve to take action. They held off as long as they could but when Bear Stearns started to crash and burn they had no alternative. Some will say this is the Fed looking after their own, but the reality if Bear had gone under they may have taken many others with them. Add to that an even greater tightening of the credit market the impact would have created a global crisis.

Of course now the tide seems to be turning and now Washington wants to get into the action. Typical politicians who in their yearning for popular press will now make the problem worse. The Federal Reserve or the Federal Government intervention is needed, not both. Both will create too much credit infused into the market and things will surge the other way instead of offering a calm transition.

The test of the Fed’s latest action will be if oversold mortgage debt begins to look like a mouth-watering opportunity to Wall Street sharpies. Then we’re out of the woods. If not, the chorus for a federal housing bailout will quickly become irresistible, since leaving Mr. Bernanke to fight the problem single-handedly would be to invite an inflationary crisis on top of a mortgage crisis. via  Capital Commerce (usnews.com).

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