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Guaranteed to Fail by Lawrence J. White, Viral V. Acharya, Stijn van Nieuwerburgh, Matthew Richardson

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IN BED WITH THE FED

Policy, whether it be printing money, guarantees or deficit spending, can prop up asset values for a while. This may even be useful in a liquidity crisis. But a solvency crisis is another thing. The longer policy distorts markets by ignoring fundamentals, the longer those reliant on market signals will sit on their hands. The Fed’s recent decision to continue asset purchases shows there is no exit once this path is chosen. As we approach the second anniversary of the Fannie and Freddie bailouts, are we better off?

James Rickards (writer, economist, lawyer, and investment adviser), Financial Times, August 12, 2010

The financial ...

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