The Feds are scrambling hard these days to “save the economy”. I think that’s a fair statement to make. When the big, rich and powerful begin to lose money and fear they will lose more it really does illustrate the trickledown economics applied to Main Street. No money trickles down for anyone and my multifamily investment market along with every other market is affected even though the government is pleading with banks to part with their cash.

Actually it took me awhile to realize Main Street was me and you.

The credit market (unfortunately including my beloved Fannie Mae multifamily investment market) have seized up almost entirely on “Main Street”. Many Banks are flush with cash but have no clue what to do right now. What they do know is hoarding cash is better than losing cash. When banks hoard cash so do investors. And when banks don't lend to each other, it can get ugly.  Folks it's getting ugly.

The LIBOR index shot up to more than 2 points over the Fed Fund rate on the 3-month loan. That may not sound bad but doubling the rate banks lend to each other is in reality telling other banks to take a hike. When banks don’t lend to each other, they don’t lend to “Main Street”.

It was a huge mistake on the Feds part to allow the investment bank of Lehman Brothers to fail. Lehman shot itself in both feet and more but most likely was stunned with the Feds move. The issue with that failing is the corporate bond market now clearly understands that anything is possible.

Bear Stearns collapse was so quick that it was thought to be a casualty of the high risk, high reward business. However allowing Lehman Brothers to fail was a deliberate act of thought.

The Federal Reserve and Treasury Secretary Paulson are working behind the scenes for a number of companies beginning with Countrywide Mortgage and the largest banks in our world. It will be a matter of history that Paulson heading Goldman Sachs in the past is on going to this day.

Warren Buffett bet $5 BILLION dollars into Goldman Sachs betting with house money and a back door guarantee from the Feds. Buffett heaped huge amounts of criticism on the way investment banks conducted business for years.

Getting double digit return guarantees on $5B has a way of changing minds I guess.

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