Things are getting crazier by the day. On Tuesday, Treasury Secretary Henry Paulson announced that the Fed would commit another $800 billion to fight the financial crisis which has spread to the broader economy and is causing sharp declines in consumer spending. The Fed plans to buy $600 billion of mortgage-backed securities (MBS) from Fannie Mae and Freddie Mac and another $200 billion of Triple A bonds from non-bank financial companies that provide financing for consumers. There's just one little glitch, Fannie and Freddie are already owned by the government, so buying the bad paper is like moving the figures from one ledger to another. It's pointless. Except for the fact, that by shuffling the paperwork, Bernanke can drive down long-term interest rates and (hopefully) rekindle flagging home sales. It's a parlour trick.
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