"Yesterday, the world's central bankers fixed bayonets, smoked their last cigarettes, and checked their Bloombergs. Then, on Ben Bernanke's signal, they went over the top...straight into no man's land.
"Markets are now caught between debt deflation and policy attempts to reflate. After Japan's market fell 9% yesterday and Australia's 5%, you had to expect some concerted central bank counter-attack. It finally came.
"The Fed, the ECB, the Bank of England and the central banks of Canada, Sweden, and Switzerland all lowered their key lending rates by a half percentage point. The bankers fired a volley of rate cuts into a human wave of selling on the share markets. Some shots found their mark. Others did not.
"The credit markets appeared to advance their front just a little bit after the rate cuts. Credit spreads narrowed somewhat, which means that lenders became a little more willing to lend.
"But negative events are overwhelming good intentions at a breakneck pace. The Fed, for example, is lending another US$37 billion to insurance giant AIG. Some of AIG's U.S.-based life insurance subsidiaries will post collateral with the Fed in exchange for investment grade bonds. What's the collateral? Hmm. Let's hope it's not credit default swaps.
"Then again, in Ben Bernanke's fabulous collateral emporium, anything can be pawned in exchange for credits that actually trade. Corporate America's balance sheet trash is the Federal Reserve's balance sheet treasure.
"Markets are now caught between debt deflation and policy attempts to reflate. After Japan's market fell 9% yesterday and Australia's 5%, you had to expect some concerted central bank counter-attack. It finally came.
"The Fed, the ECB, the Bank of England and the central banks of Canada, Sweden, and Switzerland all lowered their key lending rates by a half percentage point. The bankers fired a volley of rate cuts into a human wave of selling on the share markets. Some shots found their mark. Others did not.
"The credit markets appeared to advance their front just a little bit after the rate cuts. Credit spreads narrowed somewhat, which means that lenders became a little more willing to lend.
"But negative events are overwhelming good intentions at a breakneck pace. The Fed, for example, is lending another US$37 billion to insurance giant AIG. Some of AIG's U.S.-based life insurance subsidiaries will post collateral with the Fed in exchange for investment grade bonds. What's the collateral? Hmm. Let's hope it's not credit default swaps.
"Then again, in Ben Bernanke's fabulous collateral emporium, anything can be pawned in exchange for credits that actually trade. Corporate America's balance sheet trash is the Federal Reserve's balance sheet treasure.
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