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Wednesday, October 08, 2008


global coordinated 50bps rate cut

of this i can only express sadness. it's apparent even to those in the central banks that this can do little from a fundamental perspective. it amounts to an acknowledgement that the crisis has moved well past the mechanics of monetary policy and into another realm entirely.

as such, should it fail to stem the tide, the rate cut will serve primarily to expose and discredit central banking -- and further humanize the figures of authority which this society may well find itself sorely in need of in coming months.

this market will turn in time. it may not be ahead of s&p 750, but it will turn. it may even turn today. this, however, will not be why.

UPDATE: via the ft:

“It does not do anything to change the price of money, it is the availability of money (that is the problem)”, explained one credit trader. Despite efforts to shore up global liquidity issues by central banks across the world - some areas of the credit markets just remain unconvinced by the moves.

“One could argue that that in terms of wider macro effectiveness, cutting interest rates at this stage of the credit crisis may be as useful as ‘pushing on a string,” said analysts at Deutsche Bank in a note this morning.

UPDATE: thomas palley:

The Federal Reserve and U.S. Treasury continue to fail in their attempts to stabilize the U.S. financial system. That is due to failure to grasp the nature of the problem, which concerns the parallel banking system. Rescue policy remains stuck in the past, focused on the traditional banking system while ignoring the parallel unregulated system that was permitted to develop over the past twenty-five years.

he is absolutely right in his diagnosis, but i suspect he is wrong to think that the fed and treasury do not understand this. hank paulson helped create this system; he knows where the pain is. the problem is that it is politically impossible for the fed and treasury to start lending to the shadow banking community, with its hedge funds and dark pools. they could neither account for the funds nor control their application once fed into that intentionally obfuscated system. i expect the hedge fund universe will instead be liquidated, come what may.

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