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Strategies & Market Trends : Waiting for the big Kahuna

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To: James F. Hopkins who wrote (28777)	9/24/1998 11:07:00 PM
From: NickSE	Read Replies (1) of 94695

Article on the FED's role in the bailout. People were surprised at how fast the FED acted, well they didn't act all that fast, ( this was planed for at least two weeks) there is no way it could happen without collusion. ANALYSIS: LONG-TERM BAIL-OUT REINFORCES GREENSPAN EASE HINT By Steven K. Beckner WASHINGTON (MktNews) - The Federal Reserve's involvement in a bail-out for Long-Term Capital Management late Wednesday spoke as loudly as did Fed Chairman Alan Greenspan earlier in the day about the likely direction of U.S. monetary policy. The Fed has to be concerned indeed about the stability of the financial system and the strength of the economy to go to the lengths it did in brokering the $3.5 billion rescue for the troubled hedge fund. The Fed is minimizing its involvement, essentially claiming the New York Federal Reserve Bank played the Dutch uncle and merely provided a venue for 16 Wall Street firms to meet and hammer out the aid package, we are told. As New York Fed spokesman Peter Bakstansky put it, "We facilitated the meeting. We wanted to learn more about the exposures and the flows of funds and to what degree they might present a potential for systemic problems and also to help participants in the marketplace resolve these issues." Bakstansky said Greenspan "was kept aware" of the discussions under New York Fed auspices. But while there is no Fed money involved, the Fed's hands are all over the bail-out. It is questionable whether it would have been pulled together so rapidly in the Fed's absence. By contrast, recall the Fed's pointed refusal to assist Drexel, Burnham Lambert during its dismal denouement in 1990. As Drexel was going through its downward spiral, Greenspan was heard to say that he would "bail out the banks because I have to, but I'll be damned if I'll bail out Drexel." The Fed pulled the plug on the king of junk bonds and leveraged buy-outs to prove that not every financial institution is "too big to fail" and that there is a limit to the "moral hazard" the Fed is willing to propagate. Not this time. Not in this climate, when financial stability is already a bit shaky and the economy looking increasingly vulnerable. Ironically, the bail-out was being put together even as Greenspan was telling the Senate Budget Committee his concerns about the economy have grown and all but told the panel that a rate cut is on the way. The Fed's helping hand to Long Term Capital Management only underscores the Chairman's message. economeister.com

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