Thursday, August 23, 2007

Fed still on track

I'll have more to say on the weekend, but halfway through the week it is fairly clear that the Fed is doing a great job of preventing the mini-crisis of two weeks ago from mushrooming into a full-blown crisis (ala 1998.) Sure, the kiddies on Wall Street are still demanding a fed funds target rate cut (which they are not going to get any time soon), but it should surprise no one that the greed on Wall Street knows no bounds.

One thing to keep in mind is that August is usually a very slow time for the Wall Street, so you have to take some of these "credit markets have siezed up" comments with a grain of salt. Yes, there was a Wall Street-led "run on the banks" which caused the mini-crisis over bank liquidity, which the Fed has deftly outmanuveured, but a fair amount of business is still happening.

Wall Street essentially shot themselves in both feet by talking up this story that the credit markets were "totally siezed up", ignoring the fact that if their silly story was true then it would mean that the bankers on Wall Street would not be collecting any transaction fees at all. As we all know, there is no honor among thieves, so even as the leaders of the "siezing" held ranks (and continued to clamor for a fed funds target rate cut), more sensible and pragmatic bankers (yes, there are actually some of those, even on Wall Street) quitely continued to cut deals.

The media continues to eat up this "markets are siezed" story even though the mini-crisis is now mostly behind us.

I just saw a story about Bank of America investing $2 billion in Countrywide Financial. So much for this story that credit markets are "totally siezed up." Sure, the old subprime mortgage securitization credit market that Wall Street created and loved so much is kaput (maybe, for now), but good riddance anyway. Let's try to get back to focusing on "normal" credit.

Sure, it could be a while before everything gets completely back to "normal" (whatever that really is), but we are now on a clear march out of the woods. The sleazebags on Wall Street gave it their best shot and they did manage to create a mini-crisis that drew the Fed into action, but that was it, that was their best game, and now it is over. Meanwhile, the economy is doing "okay", just as it has for the past year, neither booming nor busting. Maybe that's the biggest problem for the boys down on Wall Street: they only really know how to play boom or bust, so a mere "okay" (GDP between 2.25% and 3.00%) is not something they know how to do, let alone something they enjoy or would willingly settle for.

-- Jack Krupansky

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