Mailbag: Ginnaty CPA Writes: On Fed Logic...and much more

}
}Dear Observer:


"The latest from the Fed. seems ludicrous to me:

Step 1: Some Big Banks get in trouble.
Step 2: Fed determines the troubled banks are too big to fail so props them up with capital infusion (ie. Bailout money)
Step 3: Fed also gives it's credit rating to troubled banks notes getting them AAA rates while non troubled banks have to get by with their AA rating...at a substantial cost difference.
Step 4: Fed says "let the lending begin" and if effect goes around the banking system to lend directly (ala AIG etc.) Financial logic in action: If you are a good, well managed bank, you

a) Don't get any Fed bailout money
b) You have to pay higher bond interest than the troubled, poorly managed banks
c) The troubled poorly managed banks have cheaper money so they can beat your loan pricing.

I think it is called Fedlogic: Make it harder for well managed banks to compete with the losers, this fosters...ah...rewarding poor managers, and punishing the good ones. A prescription for a repeat performance if there ever was one. Rich