Fed's game theory

While growing-up, when in dire need of a well crafted fib to save your hide from a real beating, how wonderful would it have been for your parents to sit down with you to assist you with concocting of the lie that you are about to tell them? Both on the telly and in print over the last 24 -hours we’ve been treated to the opinions from strategists, analysts and portfolio managers as to the best possible way to craft the Fed's lie so as to regurgitate it right back on us so that we can gladly lap it up. Fed watch is such a humiliating farce. Granted, the post-meeting communique wasn’t necessarily what the bulls wanted, but I’ll note the obvious, these guys never acknowledge that a housing bubble ever existed in the first place and now they mention subprime and credit markets in passing as if its an insignificant sideshow. I'm thinking that the current folks at the Fed are either truly clueless as it concerns the current credit situation, or applying a bit of “game theory,” they may have concluded that the situation is beyond their powers to save a problem this big and wide and that its best to go ahead and let the excesses, that was Alan Greenspan’s doing anyway, to just let run its course instead of also being labeled a serial bubble blower. This may even be a convenient tack given that the alternative, slashing rates and/or exceedingly doveish talk, would most certainly cause the Dollar Index to slice through the important 80-level like butter. Maintaining some influence over the currency is something they might actually still have at least some control over. I don’t believe it does much either way in coming weeks and months given the precarious interplay between the dollar and credit markets. In fact, I believe the dollar will eventually slice through that important support level on its own accord, but today’s no-move and moderately more hawkish tone in its post-meeting communique appears to be the safest tack for a Fed that has to be concerned for its own “career risk.”……Fannie Mae (FNM), trading within 3-points today of its highs over 2-years ago in January of 2005, is among the most glaring disconnects I can see out there. The possibility of the GSEs (government sponsored agencies) being given a green light to expand their portfolios with of this crap hardly seems something Fannie or Freddie shareholders would be rooting for. But folly is still in bloom in spite of the slightest bit of sobering-up over the past two weeks … Bear Stearns (BSC) tapped the pretend credit markets for $2.5-billion at 245 beeps above the Treasury rate. Thank you world central banks for trying to perpetuate our global imbalances. I attribute this even more than what the Fed did or said for the bouncy market in the afternoon. Don’t ever let bad behavior suffer consequences, it might actually encourage prudence.