U.S. Federal Reserve, the modern Santa Claus

The U.S. Treasury Department initially promoted the US$700 billion financial rescue package approved by Congress last month as a vehicle to buy toxic mortgage assets from banks and other institutions to spur fresh lending. However, in a sudden twist of event, it has decided to change its target to focusing on making direct investments in financial institutions and shoring up consumer credit markets instead. This has certainly rocked the equation and many were questioning the rationale of this sudden change of target, thereby causing immense uncertainties.

Apparently, the original plan never got off the ground and U.S. Treasury Secretary Henry Paulson declared that asset purchases were not the most effective use of the funds!

Hey, isn't he the same guy who advocated the original idea at the first place? A sign of "loss of direction"?

With the other significant root cause of the problem being the sky-diving U.S. consumer confidence, this change of target is therefore aimed to help restore credit flows to U.S. households by using financial rescue funds to lure investors back to markets for securitized debt such as car loans, student loans and credit cards.

It appears that many more troubled banks, companies or industries have started asking more bailout funds from the Fed, as if they are some kind of Santa Claus freely distributing free handouts! The latest being AIG, whose original US$85 billion bailout has now ballooned to US$150 billion, and the U.S. automotive companies also similarly demanding some large sum of rescue funds!

Last but not least, U.S. leading charge card company AMEX has now been granted a Bank holding status, i.e., they are now much more ready to tap into the seemingly "un-exhaustable" Federal Reserve funds!

To the U.S. Government, they will have a busy task to make sure that their money printing machine is not going to let them down by going overtime!