feds watch trading, page-55

Any cut - 25bp or 50bp, will not help resolve the core problem of the housing debt crisis. It is not as much the interest rates that are hurting the borrowers, rather the outrageous financial penalties being applied by the lenders.

That is to say the monetary amount penalties being applied have taken the borrowers into a negative equity position. A 50bp cut in the FF rate (if it flowed through to the borrowers) would barely drop their repayments to pre-crisis levels.

Aside from that, how smart is it to cut rates just for the benefit of one sector of the economy (albeit I acknowledge there is flow-on consequences).

To my mind the best course of action is to have what I call a "forest fire".

A "forest fire" will burn through the bush and wipe out all of the dead wood, as painful as it is at the time. However, once the fire has done it job a much healthier and stronger forest will grow.