Fed Had Average Joes in Mind With Interest Rate Cuts

August 21, 2007, 1:00 a.m. EDT 1 Min Read

In the Federal Reserve’s decision to cut short-term interest rates, it, no doubt, had millions of Americans in mind, as well as Wall Street, according to the Los Angeles Times.In the end, average Americans would also have gotten burned, had Wall Street endured an upheaval. The Fed is essentially bailing out everybody.

Some believe the Fed’s unusual action was to help investment bankers, securities traders and hedge fund mangers who supported the sub-prime mortgage boom and other excesses of the easy-money era.

“They have to pay the price for the risks they have taken,” said Stanley Nabi, chief strategist at New York-based Silvercrest Asset Management. “They’re paying for it now.”

However, not all experts are in agreement that Wall Street deserves a free pass to allow the industry to curtail losses from its risky bets on sub-prime loans and leveraged corporate buyouts.

“The Fed is protecting these guys on the theory that they’re protecting the economy,” said Dick Bove, an analyst at Punk, Ziegel & Co. He believes “Wall Street deserves to bear the results of their actions, and to date the results of their actions is that they’re worth $10 million or $20 million or $30 million and they have multimillion dollar houses in the Hamptons.”

Certainly Wall Street is not all to blame. “From the Federal Reserve to Wall Street, which developed new and sundry types of mortgage products, to people who have stretched themselves further than they should have, everybody shares responsibility,” said Jim Paulsen, chief investment strategist at Wells Capital Management.

Many Americans should not have purchased homes and lived beyond their means as much as they did. “Theoretically, the people who make the wrong decision should bear most of the responsibility,” Hamilton said. “But if that happened, it would probably end up hurting a lot of people who had no role in this,” he said.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.