Have you ever seen a bird flying into its own reflection? For whatever reason, the impact of skull on glass does not seem to teach these otherwise brilliant (read: they can fly!) creatures not to keep doing the same thing over and over again.

Although Alan Greenspan has reluctantly admitted that perhaps he should have seen some of the potential impact of the excesses created in the real estate house of cards, those outside the Federal Reserve to seem to almost unanimously agree that it was Al’s wall street-friendly interest rate policy that allowed so many borrowers, from private equity firms to subprime home owners, to spend too much for assets over the last five years, leading to the repricing which is at the root of the current credit debacle.

So as the global equity markets started to recognize the gravity of the challenges facing our economy over the weekend, and it looked like the most sophisticated investors in the world – U.S. equity markets investors – were starting to follow suit with the S&P500 trading down over 4% in the futures market this morning, what did the Fed do?

What else but slam its head into the glass door of loosey-goosey lending (yes that is a technical term) by cutting the federal funds rate 75bps before the market opened this morning?

Like Bush’s proposed “bailout”, this was a move to change the psychology of the market, and perhaps it had its intended impact as the market avoided major losses with the major indices ending the day virtually flat.

However, this does not change the basic reality that we live in a world where asset prices have been overly inflated by excess liquidity and as the reality of the obligations that people have incurred comes to roost ugly things will continue to happen.

Just today the SF Chronicle reported on a dramatic 421.2 percent increase in foreclosures in Cali for the fourth quarter of 2007.

I don’t know about you, but I have become almost numb to the bad news coming out about the housing sector and not just because I have been paying attention for a long time. It has become as commonplace as the murder in the inner city, and it is not going away until we go through the healing process necessary to overcome the hangovers caused by the excesses of the recent past.

One of the greatest lessons that a parent can give a child in my opinion is to allow her to suffer the consequences for her actions, because someday in the real world, she will have to stand on her own two feet. For some reason, our Federal Reserve feels like it needs to baby those who made poor decisions in deploying capital over this last cycle with a bottomless basket of puts…but anyone who looks will see the glass door that we are banging our collective head into once again. Who knows, maybe if we close our eyes it will go away or better yet, maybe like the monster in Will Smith’s recent flick Legend if we bang our head hard enough the glass will break.