If I would have been writing this piece yesterday I would have been telling you about what a horrible week the credit and equity markets had. The worst yet. There were “convulsions in the credit market” with firms being unable to fund regular business deals. Thornburg Mortgage and Carlyle Capital caught the headlines, but be sure there were others. On the equity side the economic news also got worse, with the headline that 63,000 jobs were lost in the US in Feb. Some noteworthy economists finally threw in the towel and said yes indeed, we are likely in a recession.
As far as I can tell, and granted I did just spend the day skiing with my kids, the only thing that has really changed is that the FED said they are going to inject as much liquidity as they can in to the system to keep the financial markets from blowing up. That is the same thing they have been saying forever. It looks now like they are making more money available to more players, which is a GOOD thing, but the problems are not going away. Bad assets are still bad assets, and they are still going to have to work their way through the system. What they said by this action is that things are SO SO SO BAD that we need to come to the rescue even more then we thought last week. Again this is a good thing, and should help stablize the markets from a free fall, but does it suggest that all is ok in Wonderland? Not at all.
I do absolutely congratulate the FED for this program and it makes a lot more sense to me then continuing to rachet down short interest rates. It also makes a lot more sense then the government throwing handfuls of cash out an airplane window. The FED is acting responsibly but my point is that it is not enough to stop the workout that has to take place, they are just trying to help it be more orderly.