Fed Got Scammed

The FED thought wanted to increase liquidity by increasing lending.

Instead of just doing this themselves, they decided to lend a lot of money to the banks, which they thought would then turn around and lend to consumers and corporations. The whole "borrow at 3%, lend at 5%" thing.

Unfortunatly, Warren Buffet and top analysts have been going on and on about how this is a WONDERFUL opportunity to buy into the stock market if you have spare cash.

So, the banks make a quick calculation:

"Let's see... I've got USD 30 billion in my pocket now... I could lend it to people at 6% per annum... but then again, Warren Buffet is saying that I could make over 10% per annum annualized if I buy stocks, or even better buy over an entire bank...
Lending to consumers is looking risky... Buffet just said that buying stocks right now is really safe...

hmm... which shall I choose..."


Which option do you think they chose?

Keep in mind that unlike the the Fed, or Jesus, or a church or charitable organization, these are Public Traded Companies and their directors get sizeable bonuses based on profit...

Yeah. It seems fairly OBVIOUS in hindsight, doesn't it?

And that's why Treasury is now switching to a different plan of what to do with the remaining 350b from the 700b.


IDIOTS.

Warren Buffet... you have to stop giving naive advice. My personal opinion is that Buffet is a very kind and philanthropic man. Which is precisely why he should stop trying to analyse this economic situation.
He does not understand that PEOPLE ARE NOT THE SAME AS HIM.
Normal humans are... only human.
Warren Buffet is practically a demi-god, in some ways.
This actually has some negative effects. For instance, he has forgotten that in a crisis, people will look after their own interests first, that people are greedy and fearful, that people generally earn money in order to EAT not to grow their portfolios then give it away to charity.

Warren Buffet is the sort of man, if you gave him 700b to save America, I am sure he would do his greatest effort to save America.
These bank CEOS... are the sort of people... if you give them 700b to save America, they will happily start looking for the ways to make sure as much of that 700b goes into their own pockets as possible.

Basic human nature.
Frankly, if you gave ME 700b, I do not think I could... no. I admit it. I could not resist temptation completely. Whether it be giving myself a high salary, or a contract saying that I take some of the profit if it succeeds, or a huge expense account organizing "business trips"... I don't think I could resist it. Do any of you think you could?

Warren Buffet probably could. Heck he manages billions upon billions and yet the bulk of his income comes from his own investments, not yearly bonuses or salaries. He drives his own car, lives in a small house...
The trouble is... Warren Buffet has risen above human materialism. But he's unfortunatly forgotten that normal humans HAVE NOT.

The FED forgot this too. And got scammed big time. 350b to the banks, and not much of it going to help American citizens or corporations. Why doesn't the Fed hold a gun to citi's head and force them to buy General Motors, or force citi to extend credit to them?

Taking huge amounts of cash, and giving it to Profit Orientated Corporations, in the hope that they will "do the right thing"...

FED is DUMB.... and rather naive.