Posts filed under “Credit”

Catching up with the Fed’s Thinking

Lesso_20070819The WSJ has what appears to be an "All Fed, All the Time" edition out this morning. A combination of articles does a very good job explaining how the financial system came to this point in time, what the Fed’s role is in resolving this as well as past crises, and what risks still face the market. The four articles noted give you all the details.

As we have noted in the past, Fed Chair Ben Bernanke has been stuck with the thankless task of cleaning up after Alan Greenspan. The cut to the discount window rate is merely the first step.

I see the Fed trying to accomplish three primary tasks:

• Restore Investor Psychology
• Fix the seized up liquidity
• Cushion the blows to a slowing economy

Believe it or not, those items are the easy part. Where the complication comes from is trying to accomplish the above while simultaneously avoiding:

Rekindling inflation
• Resurrecting the Greenspan Put (i.e., "Moral Hazard")
• Preventing a meltdown in the US Dollar

These are real policy difficulties that may be beyond any mortal’s ability to control. When the Fed cuts their funds rate from 5.25% to 5.0% in the upcoming September FOMC meeting, we will get the first read on well they can maintain this balancing act…



How a Panicky Day Led the Fed to Act
RANDALL SMITH in New York, CARRICK MOLLENKAMP in London, JOELLEN PERRY in Frankfurt and GREG IP in Washington
WSJ, August 20, 2007; Page A1

Lessons of Past May Offer Clues To Market’s Fate
WSJ, August 20, 2007; Page A1

The Fed’s Job
WSJ, August 20, 2007; Page A11

Credit, Profit Woes May Hit Stocks Even if Fed Acts Fast
WSJ, August 20, 2007; Page C1

Category: Credit, Currency, Data Analysis, Derivatives, Federal Reserve, Markets, Psychology, Trading

The Quants Explain Disaster

Category: Credit, Derivatives, Hedge Funds, Psychology, Trading

Category: Credit, Currency, Derivatives, Federal Reserve

Quote of the day: Kasriel on Leverage

Category: Credit, Derivatives, Psychology

Open Thread: A Stealth Fed Rate Cut?

Category: Credit, Derivatives, Federal Reserve, Hedge Funds, Psychology

Subprime Credit Rot

Category: Credit, Derivatives, Hedge Funds, Psychology

Quote of the day: Moral Hazard

Category: Credit, Derivatives, Psychology

Ratings Agencies 2007 = Equity Analysts 2000 ?

Category: Credit, Derivatives, Hedge Funds, Psychology, Real Estate

Open Thread: Closing the Barn Door on Sub-Prime ARM Mortgages

To be filed under "Better-Late-Than-Never" regulatory actions: The Federal Reserve is considering the following changes in Sub-Prime lending disclosures:

The federal financial regulatory agencies today issued proposed illustrations
of consumer information for certain adjustable-rate mortgage (ARM) products
described in the agencies’ Statement on Subprime Mortgage Lending (Subprime
Statement), effective July 10, 2007. The Subprime Statement recommends
communications that ensure consumers have clear, balanced, and timely
information about the relative benefits and risks of certain ARM products. The
illustrations are intended to assist institutions in providing this information.

(Below is a table of the proposed changes)

So is this a case of too-little-too-late, or might this actually accomplish something positive?

What say ye?


click for larger table


The rest of the proposed changes are after the jump . . .

Read More

Category: Credit, Derivatives, Federal Reserve, Psychology, Real Estate

Money Markets Substitute Halting Redemptions

Category: Credit, Markets, Psychology