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Federal Reserve like bartender?

The Federal Reserve acted "like a bartender" in lowering interest rates, says investor Marc Faber, and its actions are contributing to a stock market bubble in the United States.

"Each time you bail out, it becomes bigger and bigger, and the credit problems become much, much larger," said Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report. The Fed "feeds its customers with booze, and when they get totally drunk and are about to fall off their chairs, the bartender gives them more booze to keep them going. One day, it will lead to the ultimate breakdown."

The Standard & Poor's 500 Index has risen 2.3 percent since the Fed cut its benchmark rate by half a percentage point on Sept. 18 to keep credit market losses from spurring a recession. Faber said the action spared U.S. financial companies such as Citigroup Inc. from the consequences of bad lending decisions.

"If Citigroup made a mistake, let them be penalized, let the shareholders of Citigroup be penalized," Faber said in an interview in New York. "Then the shareholders will eventually put pressure on the board of directors not to do continuously stupid things."

The biggest U.S. bank dropped 12 percent last week after saying credit defaults will plague the financial industry for the rest of the year. Citigroup spokeswoman Shannon Bell declined to comment.

"The best for the system would be if a major player would go bust," Faber said. "Then there would be an example for investors and for the players, the Wall Street establishment, the banks, to be more prudent."

On March 29, Faber said the emergence of home loan concerns meant the U.S. stock market was unlikely to benefit from the conditions that supported its rally since June 2006.