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To: Real Man who wrote (362391)	3/15/2008 1:59:56 PM
From: stan_hughes	Read Replies (2) \| Respond to of 436258

Much more worrisome to me is that since the Fed is now accepting MBS as collateral for exchange into treasuries (under TAF & Son of TAF), the PDs have been given a strong incentive to seize MBS from hedge funds to whom they have loaned funds. Prior to TAF, it wouldn't have helped the PDs to seize a lot of MBS because they couldn't sell that paper for cash any more than the hedge funds could -- but now the Fed is in effect providing a market it (for PDs only) This is all reminiscent of the Penn Central bankruptcy of 1970 that flirted with passenger railway nationalization and eventually gave birth to Amtrak. When Penn Central went bust, lending seized up due to mutual distrust similar to today's mess, and eventually required the Fed to, in a phrase, become the commercial paper market for a while I don't need to repeat here all the references that suggest that the Fed may be buying a pig in a poke here by taking on MBS paper, and that they'll have to print like crazy down the road to replace the destroyed capital. All you have to do is look at the dollar to see what the global markets think of what the Fed is doing here If this WS IB meltdown keeps snowballing, it will represent several Penn Centrals coming unglued all at the same time and could overwhelm the Fed's ability to deal with it. They will probably consider themselves lucky if it's only the dollar that gets thrown under the bus in the process rather than the whole US credit system