Federal Reserve Branches Out into Retail Lending

November 25, 2008


I’ve been wondering how long it would be before the Federal Reserve became impatient with banks’ reluctance to return to their irresponsible lending of the pre-housing bubble days.  It seems that day has arrived and, although there’s no details yet, the Federal Reserve has announced plans to make loans directly to consumers – auto loans, student loans, credit cards – whatever. 

U.S. Treasury Secretary Henry Paulson plans to announce on Tuesday the formation of a program to increase the availability of auto loans, student loans and credit cards, the Wall Street Journal reported, citing people familiar with the matter.

The lending facility, which will be operated by the Federal Reserve, is expected to provide loans to investors who want to buy securities backed by credit cards, auto loans and student loans, the people told the paper.

Are you kidding me?  Securities backed by credit cards, auto loans and student loans?  Unless the interest rate on such securities is somewhere around 100%, I think I’d feel much safer buying credit default swaps backed by sub-prime loans!  Who in the world would buy such a risky security?  Oh, wait, I know!  The Federal Reserve will buy them!  They’ll sell them to themselves and then, taking a cue from Wall Street, will slice them and dice them, get some patsy ratings agency to give them a AAA rating, and then sell them China, Japan, Europe and Saudi Arabia.  Brilliant! 

Is it just me, or does anyone else get the feeling when hearing Paulson speak that our Treasury Department isn’t run by the sharpest tool in the shed?  When he and Bush meet to discuss the economy, how much of the conversation is spent exchanging long “uuhhhhh”s?  What does Bernanke bring to the table aside from the keys to the printing press? 

It’s unclear whether there will be restrictions on the types of investors who are able to borrow money, how the Federal Reserve will judge their credit worthiness and how the government will ensure they are using the loans to buy the intended assets, the Journal said.

I think it’s safe to say they’ll give the money to anyone for any purpose.  They don’t give a damn what happens to the money.  It’s just taxpayer money.  It’s not as though it’s something they have to treat responsibly. 

I’m seriously considering moving all my investments to an off-shore account somewhere, safely out of the reach of these idiots.  Hurricane season is over.  Grand Cayman Island would be a nice place to spend the winter.