THE FED'S INVOLVEMENT IN THEFINACIAL SECTOR:

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As one by one some of the nation's (and the world's)largest banks and financial institutions collapse, the FederalReserve and the government have been forced to step in and involvethemselves in the business world in unprecedented ways. The Fed'slevel of involvement, certainly, hasn't been seen since the GreatDepression, and perhaps it even outstrips that economic disaster.But is the Fed reaching too far? Most of our readers (60%) don'tthink so. In fact, they believe the Fed's actions were necessary tokeep things afloat. Only 40% think the Fed has gone too far in itsinvolvement in the financial sector. Kevin Welsh, a senior vicepresident with CB Richard Ellis, is with the majority and applaudsthe actions of Fed Chairman Ben Bernanke. Here are histhoughts:

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"The financial system in general is in uncharted waters and Idon't think anyone in their wildest imagination thought, when theeconomy was chugging along, thought we'd be where we are today. TheFed had to take unprecedented action to address what are arguablythe worst liquidity and credit crises in the history of ourcountry. I applaud the Fed for everything they've done. They pushedthe federal funds rate down to 2% and it wasn't doing anything toloosen up the market, because really what you're dealing with hereis a crisis of confidence between the financial institutions. Thefinancial institutions do not have the confidence in one another tomake loans because they're not sure of the collateral, and thatshort-term lending is really what our system is based on. That haseffectively shut down.

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"The Fed has basically become the lender of last resort. All theprograms that it has implemented, the different lending facilitiesthat have been made available to the banks and the investment banksand what it's done in terms of guaranteeing a portion of the BearStearns deal with JP Morgan, it's all unprecedented, but these areinitiatives that had to be taken to attempt to keep the financialsystem from collapsing.

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"People are worried that the Fed's actions are protectingcompanies from their risky investments. They're afraid that ifpeople aren't made to pay the price for risk, then they'll go outand do whatever they want and not adequately valuate risk. Butthat's not, in my opinion, what the Fed has done here. What the Fedhas done is stepped up and done what they had to do to keep thefinancial system as liquid as possible.

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"I applaud [Federal Reserve Chairman] Ben Bernanke and [TreasurySecretary] Henry Paulson because we'd be in a lot worse shapewithout the stewardship and the leadership that they have exhibitedover the last six months. They haven't lowered the federal fundsrate beyond 2%, even when oil was pushing $140 a barrel andcommodity prices were hitting all-time highs. He was beingcriticized because people were afraid of inflation and the Europeancentral banks were pushing their rates higher, but Bernanke didn'tgive in to political pressures.

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"Now we're dealing with the rescue plan. Notice I don't use theword bailout because I don't believe it's a bailout at all. This issomething we need to do, and hopefully it'll turn out to be a goodinvestment for the country. The key right now is for financialinstitutions to regain confidence in one another. The idea behindthe rescue plan is to make $700 billion available to the governmentor any entity that administers it to purchase the mortgagesecurities of various financial institutions and remove them fromthe balance sheets. This will make the balance sheets healthier sothat those institutions can start lending to each other, whichrestores confidence in the system.

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"If the bill gets passed—and I do think it will because theeconomic impact if it doesn't is going to be tremendous—thequestion becomes, how quickly will the system get back to normalfunctioning levels? We don't know exactly how this is going towork, how they're going to buy the securities, but there are a lotof smart people out there who'll. Right now we need to get thesystem back online and functioning again, and I don't think there'sany question the rescue plan is central to that."

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