This is the Cato Daily Podcast for Friday, January 25th, 2008.

I'm Caleb Brown.

Does the most recent move of the Federal Reserve Risk Moral

moral hazard? Gerald P. Odriskill, a senior fellow at the Cato Institute, says the Fed policy of 2007

led to a kind of casino capitalism in the housing market where the Fed backed the plays of

homeowners. The fear now is that the Fed backed the plays of homeowners.

The fear now is that the Fed may be backing the plays of stock investors.

O'Driscoll and I spoke yesterday.

My immediate reaction to the three-quarter cut, point cut, which occurred off-cycle, not at a

Fed meeting, but before Fed meeting, was either one of two things first is that the Fed knows something

that the markets do not know that it knows that the conditions of at least some

major financial institutions are in even worse shape than the markets are aware of

in which case it may very well have been the appropriate thing to do.

The second thought was the possibility that the Fed has simply panicked much as the politicians panicked.

Now, politicians you expect to run around like chickens with a head cut off in situations

like this

and feel like they have to do something anything even if it isn't going to be

effective

uh... which gets us the fiscal part that i'll get to the second

but one does not want a central bank caught up in that situation caught

up in a panic and I think time is only going to tell which is of these two things

namely that matters are really much worse than markets are aware of or that

...