Fed Creating Another Japan

Fed Creating Another Japan?

From WSJ:

Research papers by Douglas Diamond and Raghuram Rajan of the University of Chicago show that the fed may be making the same mistakes Japan had.  Japan kept it's zombie banks running instead of taking the losses, which elongated the downturn.  Fed seems intent on doing the same thing. 

To me, the only right decision they made was to let Lehman Brothers go down.  Of course, most analyst will tell you that this is the biggest mistake they made (The same analysts who thought our economy was fine).  But it is better to get over with the problems sooner so we can have a recovery quicker. 

As fresh data from the Fed will show Thursday, the central bank's balance sheet has more than doubled since August 2007. Some Fed programs have helped loosen the credit logjam, including the Term Securities Lending Facility, which lets banks borrow money using mortgage-backed securities and other hard-to-sell assets as collateral.

Not only are we keeping bad companies alive, but also the talks of susupension of Mark-To-Market rules are another step in that direction.  Just imagine if we could mark-to-fantasy our home prices! 

"Central bank intervention to lend against all manner of collateral may not be an unmitigated blessing," Messrs. Diamond and Rajan wrote.

I hope Uncle ben is reading this.

http://online.wsj.com/article/SB123560389732776681.html#articleTabs=article