In August, Frederic S. Mishkin a member of the Board of Governors of the Federal Reserve Bank authored a paper which explored how the Fed should react to a bursting of the housing bubble. One idea explored and advocated was a drop in short term rates.
The 50 basis point reduction in the federal funds rate by the Fed seems to indicate that they are trying to prevent a more severe downturn in the housing market.
I included some interesting charts.
The subprime/mortgage mess has accelerated this week and today the Fed stepped in to shore up the market. Many believe that a rate cut is inevitable to further shore up the market. In the meantime, the market gyrates up and down as more banks freeze credit and try to assess their positions.
After a 10 years of hype on how the real-estate market is the safest place to be, the spinmeisters have gone into reverse, saying we're headed for a collapse. Don't believe it. Sure, the real-estate market is correcting but it's not going to collapse and bring the economy down with it. Here's why.
