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To: Shack who wrote (15110)	9/28/2001 10:59:49 PM
From: stomper	Respond to of 209892

Good lord, it's not even parabolic...it's just a freaking moonshot. -dave

To: Shack who wrote (15110)	9/29/2001 8:57:10 PM
From: UnBelievable	Read Replies (2) \| Respond to of 209892

Last Weeks Consistent Positive Market Was The Direct Result Of Federal Reserve Intervention Stocks were in effect propped up by newly printed money. And while this has been the case previously the difference this time was not only one of magnitude, but also the extent that the Federal Reserve assumed the risk associated with those actions. The Federal Reserve under Mr. G. has always been more than willing to inject liquidity into the system at the first sign of any problem. The basis for their action is the belief that in times of crisis there is an initial surge of concentrated selling that has the effect of depressing stock prices far greater than would be required if the same amount of sales were allowed to occur over a longer period of time. In addition the fact that prices are perceived to be dropping quickly motivate even more investors to sell, potentially resulting in a death spiral that at the extreme results in a crash. Their injections of liquidity at such times allowed the market to adjust in a more orderly fashion than otherwise would be the case. The liquidity enabled those institutions who were so inclined to avoid having to sell stocks in a depressed, disorderly market. An example of how this worked is if Fidelity was faced with a very large amount of redemptions on the Monday that the market opened, if they in fact processed those distributions by actually selling the stock it would have resulted in exactly the panic based selling pressure the Fed wanted to avoid. As an alternative, the Fed makes loans available to Fidelity so that they can process the distributions as required and delay actually selling the stock and thereby avoid further disruption to the market. Fidelity is happy to do this since they are able to pay out the distributions at the crisis induced lower prices at the time of the distribution, and then were able to profit when they actually sold the stock, in a more orderly market, over time, at higher prices. (The mechanism by which the Fed actually makes the funds available to institutional investors is in fact less direct than might be implied from the example but the convoluted way in which it actually does occur does not change the essence of the transaction.) Up until now it had been the case that there were private sector parties who were willing to utilize the loans who were confident enough that through their use they would be able to influence market prices so that they would be able to derive a profit. Therefore all the Fed has to do was make the liquidity available. While the Fed can be accused of creating a moral hazard to the extent that the were making loaning that might be considered very risky none the less the responsibility for the risks associated with the loans did in fact reside with the borrower. What happened when one or more of those borrowers eventually defaulted on those loans was an event that the Fed never had to deal with and probably one which they were confident could always be averted with further injections of liquidity. A funny thing happened this time. And it was the same funny thing that the Fed has seen happening in various sectors as the find that their liquidity injections have less and less effect. The various parties who have always been more than happy to avail themselves of more and more credit decided that they really could not take on any more credit or the risk associated with that credit. For a variety of reasons, primarily related to the fact that the economy was already in a much steeper decline than they had assumed was to be the case, as well as all of the unknown risks which were created by the attack, the usual players were not willing to assume basic risk inherent in this type of transaction; they were not willing to bet that the prices which would prevail once the market reopened were actually panic induced extremes which in fact would rebound once the panic subsided and that they would therefore be able to actually sell the securities at higher prices than were prevailing at the time when they were being asked to make the distributions. Once again the Fed found itself, as it increasingly has, of being in the position of having to try to piss up a rope. They could provide all the liquidity they wanted but if the private sector was not willing to utilize it, it wasn’t going to make any difference. What they were forced to do this time was essentially to assume that risk. While many people are aware that the Federal Reserve acted aggressively to protect the integrity of the financial markets, an action that few would argue was inappropriate, particularly given the national security implications of unstable financial markets at a time when the country perceived itself to be under attack, it is not generally understood that the way in which this was accomplished was by the Fed in effect buying stocks to prop up stock prices. Clearly the Fed did not buy stocks outright. But by providing liquidity in a manner in which the borrower was indemnified against the possibility of a loss associated with the inability to sell the redeemed securities at a higher price in the future than the price at which they had been redeemed, this is essentially what they were doing. I don't think that it is hyperbole to say that the terrorist attacks not only caused the destruction of the WTC but also resulted, in at best, a suspension of our free market capitalist economy, and given the obstacles of returning to a free market once it has been abandoned, perhaps its actual demise. At this time the extent of the Federal governments direct determination of stock prices needs to be recognized by anyone trading or investing in those markets. Perhaps one of the reasons that we have seen some reduction in the short interest of the commercials is that they no longer have the need to hedge further market declines to the extent that was the case previously.