What a difference a day makes

On August 16...

William Poole, president of the St. Louis Federal Reserve Bank, told Bloomberg News in an interview that the subprime mortgage rout doesn't threaten U.S. economic growth, and only a "calamity" would justify an interest-rate cut now.

And the next day...

The Fed just issued a strange press release and a special announcement lowering the discount window borrowing rate by 50bp, to 5.75%. The more widely followed Federal Funds rate is unchanged at 5.25%...

This would be a reversal of policy from just 10 days ago.

The special announcement is the bigger news. Not only did they cut the rate, but they've increased the borrowing time to 30 days and have increased what they will accept as collateral. All importantly, they are accepting home mortgages and related assets.

Nothing to see over here. Just go on about your day. Move along.

This is fascinating stuff. Poor Ben Bernanke following in Greenspan's shoes. This from Greenspan back a few years...

Alan Greenspan was a study in contradiction. On Monday, he extolled the virtues of the levered-up homeowner to a credit union conference. The next day, in a speech to the Senate Banking Committee, he was singing a different tune altogether. Fannie Mae and Freddie Mac, the giant providers of mortgage capital, he warned, "are expanding at a pace beyond that consistent with systemic safety," and that "preventative actions are required sooner, rather than later."

For a Federal Reserve chairman who has demonstrated that he couldn't identify reckless behavior if it ran him over, it was rather surprising to hear him chide Fannie and Freddie for their recklessness.

Greenspan's latest comments reminded me of a speech he gave on March 6, 2000, which I have dubbed "An Ode to Technology." In the speech, he waxed on about the wonders of technology and how it had brought us a new era and all that other stuff. Folks may not remember that date, but it was four days before the Nasdaq Composite hit its all-time high of 5,048.62. Despite the recovery over the past year ago, the composite is still down nearly 60% from the March 2000 peak.