They are interested in stopping a panic and giving the markets a chance to stop and catch its breath.
Agreed Henry. Providing "liquidity" is not about propping up the market, but creating a buffer so that long-term invested funds are required to be liquidated in order to meet short-term redemptions caused by an event related panic (Y2K, earthquake, terrorism... etc.)
For the sake of others reading this, I'll explain. Certain investments that would normallly be considered "sound" can rapidly be made "unsound" by a irrational, emotion driven, sell everything, style panic. Having access to extra cash means that institutions can ride out the short-term panic, hold their sound investments, and provide support to the market.
Were they forced to sell, no matter how much they want to hold onto their investments, it would only exacerbate the panic as the selling builds up momentum. Just as we saw in the crash of '98, we can have a major sell-off, but when cooler heads prevail, money comes back into the markets.
Regards,
Ron |
