Economics Update

Well, the Federal Reserve cut the federal funds rate by 50 basis points (½%) as expected.

the Bank of China cut its rates too, for the 34d time in 6 weeks.

In response, the dollar dropped the most since 1998, (this article says since 1985) which is what is supposed to happen when you cut rates, people go elsewhere looking for higher rates of return.

Unfortunately, driving down the dollar is probably all it did. Below a certain level, the difference between the rate set and 0% (giving money away) becomes pretty immaterial, and I think that we are pretty close on this. That's what my oft repeated phrase, "pushing on a string" means.

I would also note that the falling dollar pushed oil prices higher, which I'll qualify, so as not to invoke the wrath of Dean Baker, since oil is dollar denominated, a falling dollar does not do anything directly, but it does effect the positions taken by traders in the oil futures market.

In any case, the monoliner insurers are back in the news, with Ambac wanting a capital infusion from the government, but MBIA saying that the money should instead go to assets that they insure. New York State Insurance Commissioner Eric Dinallo agrees with Ambac.

I think that MBIA's proposal is a bigger bailout, since it means that they have less to pay on the sh^%pile without giving an ownership stake to the feds.

In any case, it looks like the Treasury and the FDIC are working to do MBIA's bidding, with more signs of plans to buy bad mortgages.

BTW, here is a story to follow, the SEC is looking at tightening rules on credit rating agencies. The story I linked to has 2 'graphs, but when the details start coming out, this will be important.

The systemic failure of the ratings agencies is at the core of much of this problem.

Speaking of failures, the Treasury just bought $125 billion in stock in the big boys:

The report showed that the payments included $25 billion each to Citigroup Inc. (C, Fortune 500), JPMorgan Chase & Co. (JPM, Fortune 500) and Wells Fargo & Co. (WFC, Fortune 500) Bank of America Corp. (BAC, Fortune 500) received $15 billion andMerrill Lynch & Co. (MER, Fortune 500), which is being acquired by Bank of America, got $10 billion. Bank of New York Mellon (BK, Fortune 500) received $3 billion and State Street Corp. (STT, Fortune 500) of Boston got $2 billion.

Really about the only good news that I've heard today is New York GA Andrew Cuomo getting medieval on senior bank management:

NEW YORK (Reuters) - New York Attorney General Andrew Cuomo, who negotiated executive payment clawbacks by American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) as it received a taxpayer bailout, warned nine banks receiving government money on Wednesday that using the funds for bonus payments may be illegal under state law.

....

"Specifically, corporate expenditures and payments, made in the absence of fair consideration of undercapitalized firms, may well violate NY Debtor and Creditor Law 274, which deems such payments illegal fraudulent conveyances," Cuomo's letter said.

Obama really needs to give this guy a senior post if he'll take it.