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Federal Reserve shows how well the bailout would have worked

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September 29, 2008 – Comments (5)

The news talking heads are up in arms about the market losses today.  No question the drop coincided directly with the bailout getting voted down.

The connection no one seems to be making is that the Fed injected $630 billion into the markets today and it did nothing.

Granted, the Fed action and purchasing assets under the Treasury plan are different.  But, if $630 billion from the Fed with more almost certain to come didn't budge the credit markets, what makes our political leaders think $700 billion is going to do it?

 

5 Comments – Post Your Own

#1) On September 29, 2008 at 6:22 PM, ikkyu2 (99.39) wrote:

Hey, rd80.

What exactly did the Fed do today?  I was distracted looking at Congress.

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#2) On September 29, 2008 at 6:33 PM, ikkyu2 (99.39) wrote:

Hey, rd80.

What exactly did the Fed do today?  I was distracted looking at Congress.

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#3) On September 29, 2008 at 6:39 PM, rd80 (98.69) wrote:

The expanded an existing term auction facility, announce two new auction facilities and expanded foreign swap lines.  Most of the money was the foreign swaps.  Details here and here.
 

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#4) On September 30, 2008 at 6:59 PM, TheGarcipian (56.60) wrote:

Perception is reality, rd80. Markets are not efficient, IMO. Investor psychology has as much to do with it as underlying fundamentals, maybe even more. Liquidity is not the problem; it never has been during this entire 12 month slide. Trust has been the problem. I don't see how the Paulson Plan (even augmented by Congress) addresses this basic issue.

Thanks for the links,
--Gar

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#5) On September 30, 2008 at 8:07 PM, rd80 (98.69) wrote:

Gar,  I also think we've got more of a confidence problem than liquidity problem.  We see Buffett pump $10 billion into GS, JPM buys Wamu and raises $10 billion no problem.  There's money to lend, just no willingness to lend. 

I believe the Paulson plan is currently responsible for much of the blockage in the credit markets.  Some of the CNBC guests over the past couple weeks have mentioned private equity building pools to buy distressed paper.  If so, they'd be idiots to jump in before seeing what the gov't is going to do.  They're not going to do anything until the Paulson plan is either dead or passed and the game rules are set. 

Until something restores confidence, the Fed and Treasury are pushing on a rope.

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