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It was succor for Wall Street and "Sucker!" to the overall economy, including San Diego and other cities with housing-related economic woes. On September 18, the Federal Reserve prescribed a double dose of sharply lower interest rates that will provide little help to the anemic housing industry, accelerate the plunge of the dollar, bring rising inflation, discourage desperately needed savings, and in other ways harm the long-term interests of the U.S. economy. But the lower rates will buoy Wall Street's financial-engineering sharks and hence the stock market -- and that's what's important to the central bank.

When Alan Greenspan headed the Fed, Wall Street knew he would put its interests first. Greenspan would pump liquidity into the system when he sensed the lending markets had become "seized up." What worried him was that the corporate-takeover crowd couldn't borrow money to make acquisitions, and he intended to reverse that. This buyout activity, which lines the pockets of the biggest banks and brokerages, actually works against the economy: money is spent to finance acquisitions instead of being put into research and development, productivity-enhancing equipment, wage incentives, and the like. However, financial engineering tends to lift the stock market because investors are reluctant to sell a stock when they believe a takeover piranha might purchase it for a fat premium.

Some thought Greenspan's successor, Ben Bernanke, would resist Wall Street's entreaties and do what is right for the long-term good of the economy. But he caved.

What happened September 18 was predictable. The stock market (which was already up for the year) soared. The dollar's plunge accelerated. It is now down 20 percent from five years ago. The prices of oil, gold, other metals, and agricultural commodities rose sharply, partly a result of the weaker dollar. Inflation is almost certain to rise. Real estate experts say the interest rate cuts will not make mortgages more available or help borrowers with adjustable rate mortgages facing costlier monthly payments. This housing crisis was caused by ridiculously high prices (for example, San Diego's median home price is almost $500,000), and the Fed's move won't help stem a probable long-term home price decline or San Diego's descent into near-recession or recession.

But as soon as the Fed made its announcement, the Wall Street sharks were able to borrow money (often junk debt) to make their forays. Wall Street celebrated, knowing that Bernanke was now in its pocket. Why? Here's one reason: the top 20 hedge-fund and private-equity-fund bosses annually rake in 22,255 times the pay of the average U.S. worker -- making more in ten minutes than the average Joe makes all year. Those Wall Street nabobs are feeding money to politicians of both parties, and Federal Reserve members are highly sensitive to politics.

The problem: America is living beyond its means. U.S. consumers, who account for 72 percent of the total economy, have negative savings -- spending more than they take in and piling up frightening debt. Consumers were formerly borrowing against the rising values of their homes, but that game is over. The nation attracts funds from foreign countries, so our consumers and governments can continue their spending binges. These foreign countries hold half our debt. As the dollar crumbles, we're more vulnerable.

The Fed wants to keep the acquisition/junk-bond game going, but what has it done for the economy? What has it done for San Diego? In 2000, Petco Animal Supplies underwent a leveraged buyout. Two financing firms took over Petco, saddling the company with heavy debt. The buyers took the company private, then took it public again two years later and made 600 percent profits bailing out of their stock. Partly because of that debt load, Petco began losing out to its Phoenix-based competitor PetSmart. Last year, PetSmart offered $33 a share for Petco, but PetSmart didn't want Petco's two top executives. So Petco sold itself a second time for only $29 a share to the same group that had pulled the stunt in 2000. Those two executives were promised fat remuneration. Some Petco shareholders are justifiably suing. "Financial engineering by the Wall Street folks generates fees, but investors get harmed," says Darren Robbins, the lead attorney.

Accredited Home Lenders peddles subprime mortgages. Last year, its stock went above $60. Now it will be sold for $11.75 a share to a private equity group that reduced its original offer of $15.10 after the subprime mess worsened. The company is losing money by the bushel and has fired 1600 workers. Wouldn't it have been better to let Accredited die?

In the mid-1990s and in 2000, the Union-Tribune took on debt to buy a bunch of newspapers in Illinois and Ohio, even though for several years young people had not been reading newspapers. But management was cocksure of its course. This year, with the help of a large Wall Street investment group, Copley was able to unload the money-losing papers for $382 million. Fortress Investment Group had forwarded money to the buyer, a newspaper chain that was too deeply in debt to finance the deal itself. Copley had paid $175 million for two of the papers. Another one had been purchased in the 1920s, so it's hard to know if Copley got out even. Instead of making those acquisitions, Copley should have spent the money upgrading operations.

In 1985, investors purchased Jack in the Box from Ralston Purina in a leveraged buyout. The company was saddled with junk debt for years, which was a burden in hard times, such as the 1993 episode in which 2 died and 400 fell ill after eating in Jack restaurants. Ten years ago, the junk debt was 80 percent of capitalization. Now it's down to 24.5 percent, and Jack is one of San Diego's best-managed companies. But it would have performed much better through the years if it hadn't had to carry all that low-quality debt, even if it had still been a part of Ralston Purina.

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