Why Doesn't the Fed Fix Facebook?

By all indications, the Federal Reserve has taken up the job of keeping the stock market happy. It's high time the Fed fixed Facebook. There may be good reasons why Facebook has lost half or more of its IPO value. But there are also good reasons why the the economy is in the doldrums. Just as the Fed has fired off numerous weapons to stimulate the economy and make the financial markets feel better, the Fed should make Facebook investors happy. They'll increase their consumer spending if their stock goes up and that will boost the economy. Everyone will be happy because QE is the source of all happiness these days.

The Fed should announce QE-Facebook: it will buy up FB shares, not at the current market price but at the original IPO price. After all, the point is to boost confidence, and bailing FB investors out of their losses is a good way to boost confidence. Nothing better than a do-over when you made a boo boo. Better yet, the Fed should buy FB shares at double--no wait, triple--no wait, quadruple the IPO price, or $152 a share. That way, investors would get the benefit of the IPO pop they were all expecting. That would really give the economy a zing.

There's no logical reason to stop with FB. The Fed could also buy Zynga and other IPO stocks at pop prices. Indeed, the Fed could simply announce QE-stocks and stand as a ready buyer in the stock markets for all stocks at whatever price investors expect however unreasonably.

Throughout this summer, the stock market has moved up as the world economy has deteriorated and the U.S. economy has slowed. This rise was all because of central bank easing and the expectation of continued central bank easing. Unlimited central bank easing is the best kind, and the ECB just served it up (kind of, see the preceding blog http://blogger.uncleleosden.com/2012/09/whats-behind-ecbs-unlimited-bond-buying.html). The days when central banks would take away the punch bowl just as the party was warming up are long gone. Now, the central banks host the parties, which always have open bars. If the Fed wants a good party, it should open up the taps and let them flow freely. QE-Facebook. QE-Zynga. QE-all stocks.