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December 12, 2007 (5:00 PM)
If At First You Don’t Succeed...
The day after the Fed cut interest rates again 5 central banks joined hands in “announcing measures designed to address elevated pressures in short-term funding markets”. Investor’s initially applauded the move, sending the Dow higher by more than 270-points. However, by the closing bell – and after briefly turning negative on the day - the Dow closed up by only 41.
While it remains to be seen if today’s announcement can calm the jittery financial markets, it is clear is that central bankers are deeply concerned by the carnage in the financial sector. Unfortunately, with this ‘carnage’ largely displayed in declining stock prices, write-off surprises, rating/analyst downgrades, and smaller blowups (i.e. hedge funds and mortgage lenders), it is difficult for the Fed to effectively orchestrate a bailout. The story since August has been try, try again.
“By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.” Dec 12, 2007
By expanding what it deems acceptable collateral and offering alternatives to the stigmatized discount window, the Fed is doing its best to make credit available to whomever needs it. But what the Fed can not do is erase the borrowing/lending tribulations of yesterday.
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