The Federal Reserve Bank stepped in to pacify Wall Street swooning over the excesses of the sub prime lending market. The central bank cut the federal discount rate .5%. That move will have little effect on the cost of loans for small guys. But big banks and those who use them will pay less for credit. The largely emotional and psychologically driven stock market responded on Friday with a 200+ point rally. The rate cut reminds us of the same move the Bank made in 1998 when a giant hedge fund, Long Term Capital Management, got caught in the 1998 Russian bond default, collapsed, and sent the market south. Wall Street investment banks were left holding a $20 billion bag of potential loses. Chairman Alan Greenspan, after consulting with Wall Street bankers, took action to lessen the impact of the LTCM debacle by cutting the discount rate a half percent in two installments. Like all hedge funds, LTCM was highly leveraged and it's only raison d'etre was to make high rates of return by speculation. Then there were discussions, albeit brief ones, about whether the government's central bank should be in the business of bailing out private enterprises that take too much risk. Now there is barely a whimper of such concern despite expert opinion that the real estate bubble was fed by widespread malfeasence. Ralph Nader's remark on the Fed's compensation is pithy. He says his father asked during dinner conversation, "why will capitalism always survive?" Father provided his own answer: "Because socialism will always be used to save it."This time the company in trouble is the nation's biggest independent mortgage lender, Countrywide Financial Corp., that built a financial empire by lending to previously unqualified borrowers and making jumbo mortgage loans (>$417,00) because it could resell them to investors hungry for higher yields. But the sub prime borrowers are now defaulting on the loans making high risk mortgage portfolios worthless. Countrywide managed to stave off insolvency by borrowing $11.5 billion in short term loans at penalty rates. But there are rumors on the Street of Broken Dreams of another investment firm facing ruin as a result of a highly leveraged mortgage portfolio. One has to admit there is hardly any incentive to be prudent when Uncle Sam is willing to bail out speculators. Economists call such a practice the "moral hazard". As Hillary so blithely observed, "they are real Americans too". And they make large campaign contributions. [Thank you, Tony Auth for the 'toon.]