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Nomura's banking research head Jon Peace said coordinated Fed action stems from a three-year old crisis. "Back in 2008, there was a lender of last resort - countries bailed out the banks. This time it is governments that need a lender of last resort - but there is no obvious" one available to handle a crisis this great.
Moreover, warnings accompanied November 30's announcement about its seriousness. France's central bank governor, Christian Noyer, said "We are now looking at a true financial crisis - that is, a broad-based disruption in financial markets."
Phoenix Capital Research asked, "What Does the Fed Know that We Don't," saying:
"The whole thing smells fishy....Aside from the fact that the Fed leaked its intentions....Monday night," something doesn't wash.Action perhaps was to help institutional investors and insolvent banks like Bank of America. Moreover, other tried options failed. The Fed stepped in to help. "That alone should have everyone worried....about how dire things had become in Europe."
Of greatest concern is that coordinated Fed action solved nothing. It was little more than feel good. Troubled Eurozone countries have unresolved solvency issues. Lowering interest rates won't help. All it does is provide easier credit "which, of course, is the entire problem to begin with."
Banks are highly leveraged. Progressive Radio News Hour regular Bob Chapman says 70 to 1.
At this level, small losses can mean bankruptcy. Providing more liquidity makes a bad situation worse. Core issues remain unaddressed, including too little capital and too much leverage when economic conditions are dire. It's like betting against the house that always wins. Only fools try.
At best, coordinated Fed action bought time, but not much. "Neither math nor common sense indicate that this will turn out well. Indeed, when this mess finally comes undone, it's going to make Lehman (Bros.) look like a joke."
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