Guys, you gotta focus on the big money and the big threat - it's the money in housing finance. And the fact is the worst of the trouble is ahead. This is a US problem and the the US economy is not so strong and growing - so anyone arguing the world economy is strong is nothing but a fool if they think somehow that will ease our mortgage mess. Now, nothing is going to fix that home inventory mess - maybe high prices will cure the high prices, in time. All I'm trying to do is figure out a way to save as many potential US based defaults and liquidations as possible - remember the borrowers always blow up the lenders - and that's what's happening now. The only treatment I've seen for panics and financial storms in the past with a prayer of working is rate cuts. I'll lay off now and leave with one final mystery - why are the disclosures of trouble, bailouts, and credit injections coming out of the EMU so big compared to ours, so far? Surely, all the losers can't be all foreigners, can they - especially with a US problem? My guess is we're trying to BS our way out of how bad the asset impairment is and there's a gigantic US accounting turd we're about to blow out on everyone.
why do I need a to worry about the Fed when i can borrow money in Yen at 1%.... screw the Fed....let them set the rates at whatever they want..... Fed rate cut...BFD
No one is looking to save the CDS market. All anyone is looking to do is prevent the subprime mess from causing a total freeze-up of all of the markets. Unless you actually want economic armageddon, throwing some money into the interbank market, and lowering the Fed Funds and ECB target rates, will help prevent only this, and the only rate that will be affected directly is the Fed Funds rate. If the private market decides that private rates have to shoot up to cover the now increased risk of default, that will not be affected by anything the Fed does. All the Fed is doing is performing the function that resides in its name: it's acting as a backstop source of reserves in a time of crisis. The Fed Funds rate, meantime, has been deliberately maintained above every Treasury rate, and that policy has had the effect you would expect on credit: it's now contracting. As is the usual case, the Fed is being extremely slow to respond to this by lowering rates. As is the usual case, only if the crisis gets totally out of hand will they lower. At least they're not as bad as the Fed board that caused the Depression to become Great by raising rates into a contraction, but that's about as much as can be said in their favor.
i dont know.... after LTCM and the Russian default, the tech bust and now this...... the solution always seems to be to let poor credits live on as something else..... the last Fed chairman that had a spine was Paul Volker and he would have never put up with bullshit that has become our system now.....
The fed funds rate is not as effective as you think. They can cut it by 100bps and lending rates across the country will still go up. Do any of you even understand who gets access to the fed funds rate? Why in the world would those entities allow the rest of the US participate in the benefit of the lower rate if the perceived risk is much higher than before? The Fed is doing what they do best, inject liquidity via REPOs (very effective) and now buying CDOs with money out of thin air and thus creating reserves which will be pyramided by the rest of the system. This is very similiar to LTCM blow up and the rest of the events of 1997.
great news, the Federal Reserve System is now a junk bond fund...... breathlessly awaiting the IPO......
Hydroblunt, I supported the Fed Funds trading desk at a very large bank for many years (since the Fed never closes, as all Fed Funds traders know, I spent many a New Year's Eve, including the one for Y2K, on the trading floor), so believe me I know what I'm talking about here. If you read my posts, anyway, they are specifically pointing out that the Fed can only target the Fed Funds rate, and that this rate is for interbank lending only. (Actually, there's also the discount rate for borrowing directly from them, but banks only resort to directly going to the Fed in extreme circumstances. Among other reasons, that's because that rate is usually higher than the Fed Funds target. The Fed would rather the banks deal with each other, and so it does this deliberately.) That said, it's also true they cut twice in the immediate aftermath of the LTCM crisis. And the economic argument that lowering the Fed Funds rate would at least begin to restore a normal yield curve also stands, since the target influences the shorter end of the curve.
Give me a break. Bernake had stated in several speeches that the fed can implement all sorts of silly things in order to prevent a collapse of the financial system.
Yes, they can and they already have, by using mortage securities in this latest intervention. But they directly control only the discount rate in the rates arena, and can target the Fed Funds rate by doing things like what they did on Friday. They can also raise and lower reserve requirements. So while they can be creative, all that creativity is directed at just a few things.
dont forget about the Plunge Protection Team I mean really, how did the Dow recover from down 200 on Friday...... nobody was going long over the weekend....so the Team starts buying up spoos futures with 45 minutes to go.... what a joke........