Wall Street’s Warning

“It is not the responsibility of the Federal Reserve—nor would it be appropriate—to protect lenders and investors from the consequences of their financial decisions.” – from Federal Reserve Chairman Ben Bernacke’s speech on “Housing, Housing Finance, and Monetary Policy”

“It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.” – President Bush discussing his plans to help qualified homeowners avoid foreclosure

Wall Street has been warned and yet the stockmarket (as of early afternoon) is in bull mode. My prediction of the markets being negative today were based on not foreseeing Bernacke clearly indicating a Fed funds rate cut in his speech at Jackson Hole. I think on a “normal” trading day (i.e. not a holiday weekend and end of the month window dressing), the markets would have behaved differently. This morning’s events were obviously a concerted effort between the Fed and the White House to convey a unified message of its willingness to assist a small amount of homeowners, and not bailout the Street.

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