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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Sun Aug 12, 2007 10:31 pm Post subject: Survive the Credit Crunch by Sticking With Good Stocks |
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By: Roger_Conrad
How do you solve a liquidity crisis? The simple answer is to inject more liquidity into the financial system. The hard part is not pouring in too much and thereby setting off a speculative boom in the markets that leads to a greater meltdown later on.
That's the dilemma facing the world's central bankers today, as the investment markets confront their worst crisis in half a decade. And unfortunately, the answer is no easier this time around than it was in the summer of 1998, the time of the last liquidity crisis.
That time around, the triumvirate of Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin and President Bill Clinton confronted the so-called "Asian Contagion" that had spread over a year and a half to engulf the entire world in a credit crunch. Their solution was to inject a huge amount of liquidity into the system to bail out the banks, and they used America's financial and diplomatic muscle to pull the rest of the world along.
The bailout restored calm to the financial markets. But it was later blamed for creating a climate of risk-taking that led to the bubble of 1999, which saw the Nasdaq Composite double and subsequently crash in the bear market of 2000-02.
Here in summer 2007, it's deja vu all over again. Like Greenspan/Rubin/Clinton, the current team of Ben Bernanke at the Fed, Hank Paulson at the Treasury and President Bush has said a lot about letting the market action run its course. Earlier this week, Bernanke kept the widely watched fed funds rate at 5.25 percent. And, doubtless reflecting the views of Mr. Paulson, the president stated his opposition to a bailout of the mortgage industry and support of letting things play out.
This Friday, however, they seem to be singing a slightly different tune. After a very bad Aug. 9 carried over into Aug. 10 in the world markets, the Fed swung into action and injected money into the system. That followed similar aggressive action by other central banks earlier in the week, including the European Union.
http://www.marketoracle.co.uk/Article1790.html |
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