Hilsenrath reports that the discussion inside the Fed has turned to QE3, but that this time MBS is back on the agenda.
I think that the Fed would do well to stay out of credit allocation – the fiscal authority already owns three mortgage firms (ginnie, fannie and freddie), so they are equipped to deal with this if they are determined. Having said this, Congress is gridlocked, and I can imagine that the Fed is under intense pressure from the Whitehouse to do something (anything!).
Even with a Nobel prize it will be difficult for Obama to get re-elected if the unemployment rate is not (at least) trending down.
The FT reports that the EU is nearly gridlocked itself, and that an IMF stress test suggests the final cost of Greece could be four times higher than the original estimate of ~110bn. Naturally, the broke governments of Europe do not wish to pay such a high price, so they are looking for a much larger private sector haircut (PSI) for Greek bonds.
I feel like a fool for having faith, but i figure the Europeans realise that if they do not fix things this week – the summits are 23 Oct and 26 Oct – that there will be a credit chrunch and a recseeion which will cost them their Credit ratings, and increase the support required by their banks.
They are all out of band-aids – let’s hope they realise.