Fed readies for another cut as markets hit and hope
October 30th, 2007As the Fed prepares for another rate cut, probably 25bps, possibly 50, markets are resilient in the face of what is still a horrendous credit meltdown. With Merrill Lynch reporting a monumental loss last week, it is clear that banks are still clearing away the debris of the last few months and the real impact may not be felt for some time.
Never mind the jokes (you can’t bail out anything with a siv)around the Super SIVs: the great $100bln bailout plan hatched by some genius to support the market. Similar to the rescue plan post LTCM crash, it basically involved the market coming in to buy its own distressed assets. Liquidity is the mantra but holding up the market is the reality.
Everything is under water so its a game of smoke and mirrors. As I’ve said before its a rational response to a difficult situation. The social impact of a complete financial crash is not something anyone wants to see but the longer we put off the necessary surgery the worse it will be.
The credit bubble of the last 15 years is over. The balloon has too many holes in it and its a waste of time pumping more air into it. Satayjit Das, author of Traders, Guns and Money lays it all out in this paper. Its worth a read.
Tags: banking, credit, credit crunch, debt, derivatives, federal reserve, financial crisis, markets, money
