Editorial in IBD ( below)-urging Bernanke to cut rates. Thoughts on that probability? And if that happens, the markets will rally hard, no?
IMO this is why it's tough to be a bear: just when the BK looks inevitable, the Fed, as deux ex machina, can intervene at any time and change the rules of the game...
Forgive me for the funnymentals-based speculation -but it's Sat. night- must be the wine talking...(:
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BD Editorial on the Fed's reaction
Bank On The Fed
INVESTOR'S BUSINESS DAILY
Posted 8/10/2007
Financial Markets: The markets screamed for help. Across the globe, regulators and central banks answered the call. So far, so good. But should they be doing even more?
Related Topics: Economy
As we reported Friday, the European Central Bank pushed $130 billion into its banking system to stave off a liquidity crisis. It was the largest such monetary intervention in the history of central banking.
The Fed dumped a more modest yet still-substantial $38 billion — and some $88 billion total over the last week. Japan, too, added more than a trillion yen, just to be safe.
It may be too early to tell, but these fast moves may have staved off what television market commentator Jim Cramer a week and a half ago aptly called "armageddon" in world markets.
But what if they weren't enough? There's still plenty central banks can do. As the chart shows, the Fed's intervention still isn't as big as after 9/11. And no matter what it does, our financial system has a built-in resilience, thanks to years of economic growth and rising wealth.
We can weather this.
That said, the Fed certainly should be cutting interest rates right away. Temporary injections of funds are one thing, but an actual rate cut is the strongest signal a bank can send during a financial crisis that it's serious.
At 5.25%, the Fed funds rate isn't particularly high. Yet, by cutting it to 5% or less, the Fed could send a very concrete, convincing signal that it won't let things get out of hand.
We don't believe either the Fed or Congress should "bail out" those who made bad loans. More than 60 lenders have already gone bust, and more likely will. That's bitter medicine. Even so, that's not the same as saying the Fed should let the rising portfolios of bad subprime loans turn into a systemwide financial panic.
We don't quite know how many loans will eventually go bad. But the lenders, and their shareholders, need to take their medicine. Congress must resist the temptation to micro-manage. And the Fed must make sure that the system stays whole — no matter what.
Fast action will stave off trouble later. And let's look honestly at what's happening. As President Bush noted, the economy remains basically solid — just as it did in 1998 during the LTCM crisis.
On the positive side, consumer confidence is at a five-year high, unemployment of 4.6% means jobs are plentiful, and real incomes are growing solidly. Equally important, recent Fed data show there's some $56 trillion in net wealth in America — an amount that dwarfs the expected $100 billion in subprime loan losses.
The worse that could happen right now is for the Fed to do too little, and Congress to do too much. There'll be plenty of time to fix what's wrong later. Right now, it's time for action, Mr. Bernanke. |
