The economist is puzzled that the very rational Fed is having such difficulty bringing rationality to those terribly irrational markets:
the more frightening tremors in the system are those generated by the seemingly irrational unwillingness to hold safe investments, thereby making the safe unsafe.
And to cure this terrible irrationality, the Fed is injecting liquidity buying dud mortgages.
Hang on. Dud mortgates are not safe investments. They are extremely speculative investments. The Fed is going into the the real estate business, suddenly becoming the nations largest owner and seller of houses, something far outside its expertise and administrative abilities. Being a rentier is hard, and the Fed has no experience or organization to do it. Vast numbers of houses are bound to sit empty, or be occupied by squatters paying no rent.
Government is not permitting land to be subdivided to build houses, and to sustain the price of houses, government is now buying up troubled mortgages, thus buying up houses in foreclosure, thus pouring gigantic amounts of money into the property market. But there is quite a bit of horded land in out of the way areas that received subdivision permission back in the days when subdivision was easier, in effect, horded permissions, and of course, in response to these huge prices, people are moving to that land. Thus though housing prices overall will rise, as the price of horded permissions rise, bubble areas must fall. The Fed is doing a King Canute, and will wind up owning extravagantly priced property in Silicon valley which will, as government owned housing tends to do, turn into slums.
The economist is puzzled that the very rational Fed is having such difficulty bringing rationality to those terribly irrational markets: