Tuesday, October 7, 2008

A Firehose to A Flood



I'm here with my fire hose....Point me to the flood.


I know, yesterday I told you that the World would cut interest rates. Well, only the Aussies came through today with a full point cut. And the market tanked another 500 plus points. Should you be upset with the Bullet? Well, any cut would be a short lived pop, that's it.

Should we really be surprised that the world did not come through with the cut? Probably not. Considering with the Fed moves Monday paying interest to banks on required reserves it was a stealth cut. And the Fed also is pouring money into the system through Lending Facilities of all types and kinds.

So if the world is awash in cash, which it is, why is it not working? Would you bring a fire hose to a flood? The issue is not the money, it is trust between banks is non existant and debt destruction.

Put it this way...I come to your house and give you $500 dollars and ask you to please lend this money to Dave, charge his interest. Then you can give me back the money later.

You don't trust Dave. He has a gambling problem. But even if you trust Dave, His brother Freddie and his sister Fannie, well they suck and who knows who Fannie and Freddie do their business with.

See the problem? If you can't trust your lending partner, or who else your lending partner is working with too...then you can't trust you're going to get paid. Blame Lehman and AIG. Since their failures, the wheels have really come off.

It will not matter what the Fed does with rates, until banks can trust each other we are stuck in this mess. I'll talk about what really has to happen either tomorrow or whenever I feel like it.

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