Holding Our Breath, with a Learner in the Driver’s Seat and a Desperate President Riding Shotgun

January 22, 2008

Fed Cuts Rate 0.75% and Stocks Swing



The Federal Reserve, responding to an international stock sell-off and fears about a possible United States recession, cut its benchmark interest rate by three-quarters of a percentage point on Tuesday, an aggressive move that came ahead of a regularly scheduled meeting of the central bank.

The Fed’s policy-making group, known as the Federal Open Market Committee, lowered its target for the federal funds rate, which regulates overnight loans between banks, to 3.5 percent, from 4.25 percent.

The surprise move, unusual in both its scale and its timing, underscored the severity of the current strains facing the economy. And it bolstered world markets that had opened the week with a sell-off. European stocks turned upward on the news, and Wall Street averted the deep losses that had been anticipated overnight.

“It’s a once-in-a-generation event,” said Mark Zandi, chief economist at Moody’s Economy.com. In recent years, the Fed has rarely acted between scheduled meetings of the committee, and almost always in increments of one-quarter or one-half point. It was the biggest single cut since October 1984.

. . . after opening down by more than 460 points, the Dow Jones industrial average regained most of its losses, closing off 128.11 points, or 1.1 percent, at 11,971.19. It was the lowest close in 15 months.


–read entire article–


Bernanke has bought 330 points for a day. Tomorrow will swallow what’s left of his lack of courage and the dollar (already in virtual free-fall) will pay the price on international markets.

Like a dog smells fear, so does the investment community (if such a bag of cats dare be called community). Bernanke hadn’t the stature, the background or certainly the experience to let the market find its bottom. But it will. Short of panic, markets always find their bottom and this one has 30 years of chumming the bottom to catch up with.

The major players (Paulson’s Goldman Sachs among them) have been caught red-handed, fraudulently manipulating this market and now they’re scared to death.

So are the rest of us.

We’re holding our breath, but it’s amateur night over at the Fed and this president, with 10 months to go, cannot be relied upon to grab the wheel if Bernanke takes us off the road. Bush will make any foolish move necessary to pin this tail on the next donkey.

A market down a thousand points is not (yet) a crash, but the new kids on the block are treating it like one and what they will get for their timidity is an increasingly petulant investor class.

The only cure for that is a crash of truly epic proportion and we may yet have it.

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