It could be worse.

Maybe no bailout is the lesser of two evils.

This excerpt is from a news story published on 6 days ago, when everyone thought the bailout was in the bag. We had a nice rally in the stock market and things were looking up.

But in the background there was another worry. What would happen to the holders of ultra safe but low yielding treasury bonds?

This from the Telegraph, dated September 23:

In the past week, the dollar has fallen by 3pc on a trade-weighted index while the price of 10-year Treasuries have dropped 4pc. Put these together and foreign buyers of (treasuries)have suffered a 7pc loss.

The real worry is that there could be a stampede for the exits as they try to cash out before suffering even bigger losses. The Federal Reserve might then be forced into the unpleasant task of pushing up interest rates in the midst of a crisis.

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So, what's your poison, hard to get credit but low interest rates for those who are credit worthy or easier to get credit with high interest rates.

You want to see the housing market REALLY come to a screeching halt? Raise the mortgage interest rate to 10-12% like we had in the early 80's.

Bailouts have unintended consequences.

BK