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Dilemma

Wall Street faces another moral hazard moment. Will Lehman Bros. get a Bear Stearns style bail out? Will it be left to work out a private sector solution?

It seems to me that there are a lot more of these situations looming and it would be a huge mistake to bail Lehman out or to guarantee its bad assets for a suitor. It seems like rumours are enough to set a company into play.

Overall, the Fed must be looking at lowering the fed Funds Rate here. The Freddy/Fanny rescue has brought down mortgage rates at a time when the housing market needs any help. The Fed can further help by lowering rates; the strong US dollar makes this an easier concept to grasp.



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