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From: Drew Barrett
Fed pumps $70 Billion into our nation’s fragile financial system to try and ease the stress over the market imploding, as many fear this is the worst crisis since The Great Depression of the 1930’s. “While this move might help in the short-term, amid concerns of Wall Street, one’s got to wonder how we can work are way out of the over-leveraging of banks,” commented Andrew Vaughey. Lehman Brothers case in point. The World’s fourth largest bank filed for bankruptcy protection. Washington Mutual downgraded to Junk, and now is considered by many to look like its on the shopping block for a JP Morgan, or Bank of America.
The federal reserve aide came in two functions, first the $50 billion immediate cash infusion, and then another $20 billion regularly scheduled injection in temporary reserves. The maneuver by Federal Reserve Chairman Ben Bernanke and his central bank colleagues prepare to decide on which direction to take on interest rates. Some are critical of Alan Greenspan say is the one to pick who killed our economy. Why? The deregulation of the banking industry, which means in layman terms, it made it too easy for banks to extend credit & leverage there portfolios. Now we’re paying the price.
Merrill Lynch, another powerhouse in the brokerage industry, decided to not go it alone, and be purchased by Bank of America. Now, insurance giant, AIG is dangerously close to toppling. Against this backdrop, Wall Street plunged 500 points, the most since the September 2001 terror attacks.
The cash infusion Tuesday is designed to help ease the higher costs in lending rate between banks. A sharp rise in such borrowing costs, which has happened, makes banks reluctant to lend each other cash, worsening an already tight credit conditions. And, just as we know that consumers have been a mist a credit crunch, your starting to see this spill over to the business sector, a factor further slowing the economy.
Hold on to your seat, because this is going to undoubtedly be a Wild Ride.
Posted By: Andrew B Vaughey, Nicholas B Vaughey, and Drew Barrett (updated September 20, 2008)
