The Big Picture

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NYT Fed Quote

Sunday, March 09, 2008 | 08:01 AM

For the first time ever, I am on the front page of Sunday New York Times (and above the fold). The really cool part is I didn't kill anybody, steal $400 million dollars, or lose billions as a rogue trader.

"In the last seven months, policy makers have cut interest rates, injected money into the banking system and approved a fiscal stimulus package in an effort to keep the economy from slipping into a recession. Often, the moves seemed to work at first, only to be overtaken by more bad news.

The failure of any of the usual fiscal and monetary policy tools so far raises questions about what the Federal Reserve and federal government can do in the near term to counter the forces that have battered housing prices and pushed down the stock market and are now causing a hiring slowdown.

“There are times when there is only so much the Fed can do,” said Barry Ritholtz, chief executive of FusionIQ, an investment firm in New York. “It can smooth out the business cycle a little bit, but last I checked, we haven’t done away with the business cycle.”

One of the main problems now is a deepening crisis of confidence that is compounding the ill effects from the housing downturn. As lenders and businesses become more cautious about whom they lend to and hire, they are slowing an already weakened economy.

If the housing boom was a manifestation of irrational exuberance, some say it has swung too far in the other direction, to irrational despondency.

“Banks went from giving money away like drunken sailors to not lending to the most credit-worthy borrowers,” Mr. Ritholtz, who writes the popular economics blog The Big Picture, said.

How wild is that?

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