Just look at the Irony of it all !
When the Fed rate was as low as 1% for nearly a whole Year some years ago it had created the scenario of Wanton Mortgage Lending and Wanton Mortgage Borrowing and had led to a Surge in House Prices
When the House Asset Bubble Burst and the ugliness and lethalness of the Sub Prime Lending spilled over to Main Street Credit too ,we have witnessed an unprecedented scary financial crisis that has toppled major Financial Powerhouses and taken the World’s Financial System to the Brink and on the verge of collapsing.
Today, as a remedy in the current situation and to inject liquidity into the financial system, all major Global Central Banks have dropped their Rate by 50 basis points or half a percentage point.
The Fed has dropped the rate to 1.5 % to inject funds to help to some extent to clear the mess that was created in the first place by more funds being released into the System when the Rate was at record lows of 1% some years ago by tempting investment and commercial banks to chase higher yeilds that were made available in riskier investment avenues and security products
Poor Fed Governor,Ben Bernanke, has little option but to bring down the Rate to try and salvage the economy…..his predecessor,Alan Greenspan, is now being squarely blamed for the current crisis for reducing the rates to as low as 1% and moreover keeping it at this level for a long period of nearly a year…allowing rampant misuse, of the increased liquidity made available, by both lenders and borrowers in creating house asset bubbles…even when warning signals had emitted in 2003,Greenspan had played them down with misleading assurances to the Powerful Finance Committee of the Senate that Mortgage Lending presented a Low Risk and that the increasing House Prices did not represent any bubble and one should not worry about it and to let the House Prices rise even further !
What a catastrophic error in judgement ! What an irony now !