Would Fed's rate cut change anything?

Recently, I was explaining to my wife that a very anticipated rate cut by the Fed could allow infusion of cheap money in the economy, causing people to be able to afford cheaper mortgages, increasing housing demand, and consequently increasing housing prices.

My wife asked "Why would it help the people as a whole to save some interest on the mortgage, but pay higher for homes, if the prices increase"?

Now that question did stump me. So I decided to think about it.

The only people who will benefit from the cheaper money will be the ones who buy right away, with cheaper money, before the prices start to go up. But it is only a matter of time before they do. So what is the advantage of cheaper money for the rest of us?

It does not increase the GDP of the country in terms of production. It has an inflationary effect on the prices of homes. It reduces the value of the Dollar in the international market. It allows the mortgage companies to create innovative products to lure homebuyers again into risky loans.

In reality, almost nothing that cheaper money brings to the market will make America more competitive. Well, almost nothing, because cheap money breeds innovation, promotes risk taking, and allows innovation that can, in the long run, make the country more innovative.

But the Fed has no way to ensure that the cheaper money finds its way to go where it should. And it has no way to ensure that the cheaper money is not used to issue those sub prime loans again.

It really boils down to what is more profitable to those who get this cheap money. If the banks and financial institutions find the returns on sub prime mortgage better than the Venture Capitalists find the returns on risky new ventures, the economy would behave exactly the same way it did before.

So take your time, and figure why are all these financial institutions crying hoarse over an impending stagnation or recession?