Nov 01 2007
Does the Fed Know Something We Don’t
Heard the news that the Fed quietly pumped $41 billion into circulation. That is more than what it did in the summer just before the first rate hike. But this time, the operation is carried out after a cut. I am puzzled by the aggressive posture the Fed takes, but I am more than willing to give the central bankers the benefit of doubt.
What strikes me is how much anticipation as well as second guessing regarding the most recent rate cut. WSJ quoted some downright derisive comments: “The financial markets have been like a playground bully, sitting on the Fed’s chest waiting for Ben Bernanke to hand over his Halloween candy. ”
I almost shared the sentiment. But the news of this new round of liquidity injection seems to suggest there is more to it. Sure enough, Citigroup got hammered today and SEC is investigating potential book-cooking by Merrill Lynch.
Maybe the credit market trouble is not over yet. Maybe disruption in financial markets can spill over to the large economy. Maybe Mr. Bernanke is not paying for puts for financial speculators after all.
Please, Mr. Bernanke, don’t let me down. U.S. financial system is one of the last few places where reason and secularism still triumph.