Nov 05 2007
Fed Gov. Says “Sorry Wall St.”
Federal Reserve Governor Frederic Mishkin told Wall Street that the Fed’s rate cut policy doesn’t revolve around their losses and stupid investments Monday. The Fed’s policy is to protect the economy, not protect Wall Street earnings or bail out banks that made dumb loans.
Mishkin’s speech comes after a week of slouching performance and a Dow down slide. We wrote last week about how the Fed rate cut hadn’t seemed to help much. Maybe his words were a reaction to an implicit criticism of the Fed’s activities.
Pulled this interesting tidbit from his speech, which is available here:
One could argue that the valuation of financial products backed by mortgages and corporate loans has always been uncertain, as the ability of borrowers to repay their debt ultimately depends on the performance of the economy. Yet, especially in very recent years, investors appeared to be less concerned about macroeconomic uncertainty or about the attendant problems of adverse selection and moral hazard inherent in asset-backed products. Thus, abundant credit flowed cheaply to borrowers regardless of the risks involved.
In other words, “It’s your problem, not ours.”
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[…] a speech Federal Reserve Governor Frederic Mishkin made last month. We titled our article on it Fed Gov. Says “Sorry Wall St.” because it seemed as if the FOMC didn’t care about the immediate ups and downs on Wall […]
[…] No question who butters Schumer’s bread. It’s not the first time he’s said nasty things to Bernanke either. He did a chicken little dance back in November (read our coverage). But as Bernanke has pointed out before, the current downturn is hitting financial institutions a lot harder than the rest of the economy. Fed Governor Mishkin already said that Wall Street’s losses weren’t going to be Fed priority numero uno back in November (read our coverage). […]