With the 50 basis point cut on the Fed Funds Rate, what is going to happen, and could it ultimately have the opposite effect?

Sure, it will help many ARM holders, as well as those with HELOCs, credit card balances and some others.  But what about the long run?  It hurts those trying to save money, encourages adding more debt, and may even create more inflation.

All of that may occur, but the reality is that the rate cut will not help homeowners who are already in trouble, so it does little to help the credit crunch.  And what about mortgage rates themselves?  What about foreign investor participation?

Mortgage rates themselves are driven by Mortgage Backed Securities, which are bonds and are driven by market forces, including foreign participation.  With foreign investors able to get higher returns elsewhere (there own banks are keeping rates the same or increasing them still), demand for mortgage bonds will drop and rates will rise. Couple that with a weaker dollar and you will likely see inflation increasing.

The bottom line is, will Big Ben be saying similar things as Big Al did? 

Remember that Big Al said he knew the low interest rates were fueling the wild mortgage products, but felt there was nothing he could do.  He also stated several years ago that he saw the tech bubble, but there just wasn't anything he could do about it. 

So, will Big Ben being saying he knew inflation was eating us alive, but he just had to come to the aid of the financial markets?

Big Ben mentions that the subprime mess is long lasting.  A mortgage lawyer, Kal Das, states it this way..."the carnage is far from over."  Carnage?  That can't be good. An Executive VP at RealtyTrac says "this is just the beginning of a new wave of foreclosures."

Big Ben must feel like his hands are tied and there is nothing he can do. 

So, he goes and pulls a Bullwinkle saying "hey, Rocky, watch me pull a rabbit out of my hat" and surprised the markets.  Did the Fed panic?  I think so, and this is what scares me about the cut...

1. It doesn't do much (if anything) to help the credit crunch
2. It allows inflation to take hold even more
3. If stocks don't start kicking butt, foreign investment will be gone

That being said, the Fed is likely to drop to 3.75% as a destination, which goes against there own statement..."some inflation risks remain."  If inflation risks remain, why are the cutting rates in the first place?