It's Magic!

Fed improves liquidity by lending to banks that are squeezed. Like magic, the market rallies and news commentators are talking about how this will help avoid recession and improve recovery. Is anyone asking why these banks are unable to get liquidity themselves? If this is so good, why not do it all the time? What has the government been waiting for? Why not always have a fantastic economy if there's no down side? Why EVER have a recession?

I have the answer.

There is a downside.

Banks can't get liquidity because people don't think they're worth the risk. There's no free lunch.

Allowing companies to fail is a good thing. Propping them up encourages failure. Who do you think will foot the bill if these risks, that the market has deemed not worth supporting, fail? The answer to that is whoever gave these banks the loan. In this case, it's your government.

Mark my words. Whenever the government invests in the markets, it takes risks the market participants are unwilling to bear. It buys high and never sells. We should be careful that the cure is not worse than the illness. When a bank goes under and doesn't repay the loan to the government, the next question you will hear is whether the government should support the bank and effectively add to a bad trade. We should stop rewarding failure.

After we take the medicine of recession, if it even comes, our economy will be stronger for it. There is no way to buy your way out of it. Trying to do that will only hurt us more in the long run.