While the markets rallied and folks cheered the Feds, proclaimed they saved the day, a dissenter emerges in the form of Winter Watch via Dr. Strangelove: Trial Ballooning More Disasters.

Today, the Fed announced a new liquidity plan.

the Fed announced a plan to resuscitate the ailing credit markets by lending $200 billion to battered financial firms in exchange for debt- or mortgage-backed securities. Starting March 27, the central bank is planning to offer weekly auctions, which could exceed $200 billion if there is sufficient demand, the Fed said.

I felt alone in the perception of an enabled ponzi subprime mortgage game continuing unabated, a shell game to push off this greedy disaster onto the taxpayer. Was I wrong? Did I just not understand? After all the market went up the highest 1 day rise in 5 years.

From Winters:

It now seems that the window is now wide open for banks and dealers to borrow against more of their mortgage securities, and lots of them. This is not the same as the Fed directly monetizing however. Those collateral securities are loosely defined as AAA, a universe that is steadily decreasing. Again, assuming that these institutions wish to borrow, what exactly will they do with the new credit? Because the real or actual market in asset backed securities has been trashed, in theory there may be an opportunity for institutions to play the spreads, borrow cheap with Treasury swaps (borrowing Treasuries), to lend more dear. However, this will only work if the securities purchased are not fictitiously priced. Perhaps at this stage some are, but to me that price clearing of old FC is still a work in progress. If anything, these interventions cloud and distort that and add even more uncertainty to proper securities pricing. More likely, the response to this will be to take securities, borrow against them, and sneak it into the crack up boom pipeline that the Fed seems so oblivious about

and Winter also warns of another plan in the works, to direct Fed purchases of debt of Fannie Mae and Freddie Mac or mortgage-backed securities, where he warns of an imploding universe.

I would expect the impact of this on the targeted securities to last about just long enough for the trading desks to mobilize the proceeds into more crack up boom (CUB) trades. This would be mostly be a test of who has the quickest electronic order system than about any special talents. You, me and Aunt Millie can only watch in horror from the ledge of room 1408 if this plays out. This would be like showing slasher movies to four year olds. Indeed the latest reaction of the markets just to this trail balloon is stunning: more parabolic price action in CUBs, and more USD trashing. The obvious ques.tion is would this latest scheme just be another dud stupid dog trick, or does Dr. Strangelove really have his finger on the nuclear trigger? The second question: do they sterilize any outright mortgage purchases by selling Treasuries? Even if the later I would still characterize this as a 1945 style nuclear explosion

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I must agree and wonder how long this goes on. At minimum, I hope my writing turns you on to Winter. Even if you disagree with his analysis, his style is unparalleled. I believe so is his insight.