Yahoo - "Fed mulls interest rate cut, maybe to all-time low" (12-14-08)

"To battle the worst financial crisis since the 1930s, Fed Chairman Ben Bernanke and his colleagues already have ratcheted down their main lever for influencing the economy — the federal funds rate — to 1 percent, a level seen only once before in the last half-century."

Option Armageddon - "Do You Know Where Your Money is?" (12-14-08)

"In a fractional reserve banking system, where banks take your deposits to make loans, your money is gone the instant it’s deposited. You give money to the bank because they pay you interest on your deposit. Banks in turn hand your hard-earned cash to borrowers. The bank makes money by paying you a lower interest rate on your funds than it receives from those to whom your funds are lent. 'Net interest margin' this is called. If your money is gone the instant you put it in a bank, why do we all keep doing it? How does the banking system continue to function? Because we all trust that, in general, the banks will make good loans that will be paid back. That’s what they get paid for after all: to judge credit risk. All of us with savings would like to make a return on those savings. There’s nothing wrong with that. Since we don’t know how to lend money, we hire professional lenders to do it for us. But in the age of structured finance and securitization, banks thought they were passing off credit risk to investors, so they stopped measuring it."

Naked Capitalism - "Deflation has become inevitable" (12-13-08)

"Bernanke wants rates low to try to stimulate economic activity and has even broached the idea of long bond purchases to keep yields on the long end of the curve down. But the poster child of deflation and low interest rates is Japan, which due to its high savings rate, was not dependent on external funding. The US should want the dollar cheaper to boost exports, but that risks the ire of our creditors, who would take big losses on their FX reserves (many economists argue this idea is specious, but try explaining the loss in paper wealth to a populace not schooled in such niceties. FX losses, when the dollar was weakening earlier in the year, produced a lot of ire in China, including among bureaucrats). Similarly, even if you subscribe to the deflation outlook, 3%ish 30 year bonds is a pretty risky bet independent of the currency risk. So it looks like our friendly funding sources are likely to get burned one way or another, perhaps both."

San Francisco Chronicle - "S.F. feels the pain of real estate meltdown" (12-14-08)

"The median price of a single-family home in San Francisco fell 16.6 percent to $702,000 in October, the most recent month for which data are available, according to the real estate information service MDA DataQuick. The October drop compares with $842,000 in October 2007. The median price is now 22 percent below its peak of $900,000 in May 2007."