Following yesterday’s Fed’s 25 point cut in rates the markets, and the Dow in particular, decided to sulk by going into freefall. Had the Fed not read the warnings in the financial press? Clearly not, as both Morgan Stanley and Goldman Sachs had stated that unless there was a minimum 50 point cut then forget any slowdown, there would be a full blown recession next year.
However, the Fed’s decision to restrict this cut to one quarter of one percent simply reflects the fact that a full blown recession is not necessarily a foregone conclusion. In addition in an unprecedented move earlier today, the Fed, the Bank of England, the Bank of Canada, the ECB and the Swiss National Bank all decided to take measures to “address elevated pressures in short-term funding markets”.
In layman’s terms the major central banks are now willing to ease their lending restrictions and accept a wider range of assets as collateral thereby easing the “credit crunch”. The response? The Dow regained yesterday’s losses, the carry trades have risen and Wall Street has stopped sulking, for now!!
The events of these past two days have simply reinforced my somewhat jaundiced view that had the likes of Morgan Stanley and Goldman’s obscene greed not created the sub prime crisis in the first place we would not now be in such an uncertain and precarious situation.
As I have said in a previous post the words of Thomas Jefferson have never been more appropriate: “If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will
grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”
If there is one single lesson we can all learn from the financial crisis of 2007 can be summed up by John Adams: “All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.”