Wednesday, January 23, 2008

Reasons for the Fed Action

I think most commentrators have it wrong here. Does anyone really believe that Fed will act to snuff out a 500 point decline in the DOW? Dow has declined by that before, without nary a Fed action. Yesterday was different.

1. If Fed hadn't cut yesterday and let markets sink, I think it would have become impossible for MBIA and Ambac to raise new financing. You can't raise financing when stock prices are at 0. And I think it was these 2 companies, more than anything else, that made Fed cut as much as they did. There is just a chance that MBIA and Ambac might now survive. MBIA is either a 10x or a 0 from here.

2. At some level of interest rates, credit markets will work again. There is nothing like free money that motivates people.

3. Monetary policy was behind the curve and now it has finally caught up.

4. Why let markets have a 500 point bad day when anyway the cut was coming next week?

1 comment:


The fed is a mess.