You guys make it sound like the FED is made up up a bunch of uneducated idiots. They know what they are doing.
From the WSJ: EuroLinks News Alert: Analysis and Linksþ Behind U.K.'s Shift on Bank BailoutsBy JOELLEN PERRY and JASON SINGERSeptember 19, 2007; Page C1 The troubles at British mortgage lender Northern Rock PLC have already claimed at least one major casualty: Bank of England Governor Mervyn King's tough-love approach to handling the global credit crisis. As market turmoil bred trouble among banks, Mr. King refused to join other central bankers in flooding the market with funds, criticizing that approach as encouraging the kind of risky behavior that spawned the crisis to begin with. Now, in their efforts to respond to a bank run reminiscent of 19th-century panics, policy makers in the United Kingdom -- Mr. King's central bank included -- are stepping in with the most spectacular bailout of all. Northern Rock customers lined up Monday outside a branch in York News that U.K. Chancellor of the Exchequer Alistair Darling, who oversees the Treasury, together with the Bank of England, had taken the highly unusual step of guaranteeing all deposits at Northern Rock, combined with an unscheduled £4.4 billion ($8.78 billion) injection from the central bank, brought a measure of calm to depositors and investors yesterday. A Treasury spokesman said the guarantee extends to any solvent bank in similar circumstances. Northern Rock said that lines at its branches and traffic at its call centers had decreased sharply. In London yesterday, Northern Rock's shares rose 8.2% to 306 pence ($6.11), after losing about 30% on each of the two previous trading days. Shares of other U.K. mortgage lenders bounced back sharply as worries eased. Policy makers' turnaround, though, has left some economists wondering whether they have now sent exactly the message that Mr. King had wanted to avoid. "I think it's awkward to say the least", said Jonathan Said, senior economist at the London-based Centre for Economic and Business Research. "Because they have for the past month or so stuck their necks out, saying they didn't want to bail out the banks because of problems of moral hazard, and now they've had to go back on that." Contesting the notion that the central bank was abandoning Mr. King's stated aversion to encouraging moral hazard, a Bank of England representative said, "Mr. King has made clear that there is a big difference between protecting depositors and bailing out companies and shareholders." Mr. King has cut an outspoken and independent figure ever since he took the helm of the Bank of England's nine-member Monetary Policy Committee in 2003. When banks' worries about lending to one another pushed short-term interest rates to record highs in early August, Mr. King stayed notably on the sidelines as the European Central Bank and the U.S. Federal Reserve took extraordinary steps to ensure that cash-hungry banks could get the money they needed. In written testimony to the U.K. Parliament's Treasury Committee last week, Mr. King slammed those moves, saying that "the provision of large liquidity facilities penalizes those financial institutions that sat out the dance, encourages herd behavior and increases the intensity of future crises." Some contend that Mr. King put the U.K. banking system at risk. "I think there is a difference between managing systemic risk and avoiding moral hazard, and I think the BoE has very much erred in the direction of concern about the latter, at the risk of inflaming the former," says Malcolm Barr, U.K. economist at J.P. Morgan in London. Negotiations to help save Northern Rock over the past few weeks show the central bank's bailout aversion in sharp relief. As short-term money markets froze, Northern Rock, one of the U.K.'s top five mortgage lenders, was most affected because its business model relied heavily on short-term borrowing. Unable to secure the financing it needed from the Bank of England, Northern Rock recognized it was in dire straits and approached a handful of potential buyers to rescue it. But early last week, a potential deal with larger bank Lloyds TSB Group PLC fell through after the Bank of England -- citing moral-hazard concerns -- refused to provide emergency market-rate funding. Instead, with no buyer, Northern Rock Friday became the first bank in more than a decade to get an offer of emergency funds directly from the Bank of England. Essentially, the bank did for Northern Rock what the Fed had already done for all U.S. banks: accept highly rated mortgage securities as collateral for loans, albeit at a penalty rate. But that concession from the previously intransigent central bank didn't have the desired stabilizing effect: Unnerved depositors jammed the Northern Rock Web site and lined up at branches throughout the U.K. to withdraw their savings. The central bank likely didn't anticipate its agreement to provide emergency short-term funding to Northern Rock would provoke such turmoil. Now, many suspect that the throngs of worried savers helped spark enough political concern that the bank ultimately agreed to the government's provision of a far broader bailout, recognizing that the damage to its own veneer of independence was secondary to averting a full-on crisis. To be sure, some observers contend the Bank of England has remained true to its word all along, noting that the government intervened specifically to guarantee deposits -- not Northern Rock's shareholders. "I don't see this as the BOE changing their policy at all," says Michael Saunders, U.K. economist with Citigroup in London. "Remember that the institution is not guaranteed, the solvency of the institution. Investors are not guaranteed." Such distinctions, though, were lost on others, who pointed out that the investors who bid up bank shares yesterday appeared to see the move as a general bailout -- and a reversal of the central bank's policy. "I'm not sure they've covered themselves in glory in this process," says Ben Broadbent, U.K. economist with Goldman Sachs in London. *** As traders, we can (and most definitely should) profit from whatever situation arises, but many can't be so glib about the irresponsible decisions made by our leaders in government. Good trading, JJ
It's really comical reading all the ET humanitarians on this board talking about greater good. LOL. I love it how about a bunch out of out work sycophant daytrading leaches suddenly care about society. I also love how these people who could probably barely get Best Buy to return a phone call for a job app are suddenly world renowned economists that are so smart and have it all figured it out. Let me ask you guys this. What do you think the consequences of letting the 100 trillion dollar credit markets collapse would be? That's right, 100 trillion!!!! That's in notional value. That's 100 trillion in credit derivatives, that is the glue that ties everything in this world together, EVERYTHING. It's the very lubricant of our society. From the food we eat, our schools, our churches, our power grids, our communication, our banks, everything. What do you think happens when we lose that lubricant and this big 100 trillion dollar piece of machinery breaks down. Without liquidity, that is what happens. Should banks and hedge funds be bailed out for over leveraging themselves? Of course not. That is a very small part of this. That just happens to be a byproduct of the fed's actions. This is not about the stock market. This certainly is not about housing. It's about keeping the economic heart beating. This is not just about the US. Our derivatives are connected to every country on the planet from Uganda to Slovenia. Our derivatives connect all the debt, all the equity, all the real estate, all the outstanding loans over the entire planet. Maybe, just maybe, these guys at the fed have a little more foresight then the average ET'er sitting at home in his boxer shorts reading end of the world blogs all day long with a bag of dorittos in one hand and a remote in the other watching CNBC. Just a guess. My guess is most of the angry people here were short and got killed. And rightfully so. No one should have placed a binary bet ahead of the biggest economic news we have had in 9 years. Happy trading.
you don't know anyone's qualifications to do anything, and it's very arroangant of you to think otherwise. That's right, let the shell game continue, who care WHO pays the price, let's just sweept the problem(s) under the rug for the future ... Actually they always get bailed out, hmmm, OK, now I see what side of the fence I need to be on. Yep, rob from the middle class and poor, give to the rich, that's my motto. The problems cause by the derivatives market have been aruged in detail by many financial analysts, traders and pundits, how also happen to have a moral backbone (not that actually means anything, these days, or that it ever meant anything, ever) ... but hey, tell you what, have a doritos on me. Nope, wrong again ... the anger at the rate is that the longer this game of musical chairs continues, the worse the price is going to be to pay in the end. Not that I, or any of us, will be, mind you. Good trading, Jimmy Jam
Hey JJ, guess who stands to lose here if this falls apart. Guess who is on the other side of this derivative mess? Take a wild guess buddy. Think really hard. Give up? It's you!!!!!!! LOL. That's right, your money market fund, your bank deposits, your mother's mutual funds, your girlfriends state teacher pension, your dad's pension from GM. It's not the hedge funds that got bailed out. It's not the homebuyer that got bailed out. You did!!!!! Your family did! Your friends did! You are too dense to see that though. So let me guess, you want to see yourself, your family and all your friends lose everything so we can start over and rub two sticks together to start a fire to warm ourselves? LOL. Look, there is no perfect solution. The problem is not the fed rate cut, but the irresponsibility of all of us that forced the fed's hand. We are the ones to blame and WE are the ones that got bailed out. If all these debt and credit issues blow up and become worthless, it's not the hedge fund managers that give a shit, they didn't have a stake in the game. You did! Look around you pal, every asset you and your family have is tied to these derivatives. Everything from cancer research to the financing of that 737 you flew on from NY to Boston. Wake up.