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“Since the Great Depression” March 17, 2008

Posted by davidzweig in economics.
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One doesn’t like to read that phrase, but there it is, in a blood-chilling article from the March 17 Financial Times.

The Fed is raising the duration of loans made through its discount window to 90 days and also easing the discount rate to 3.25 per cent from 3.50 per cent.

This is the first time since the Great Depression that the Fed has extended financing to non-commercial banks. Traders interpreted the moves as a sign the credit crisis had entered a more dangerous phase.

Mark Cliffe, head of financial markets research at ING, said: “The central banks are valiantly trying to restore liquidity in the financial markets and cauterise the wounds from the demise of Bear Stearns.”

“’Sadly, there can be little confidence that this will remedy the interconnected problems that continue to plague the markets: contracting credit availability, asset price losses and uncertainty, burgeoning default risks and counterparty mistrust.”

At this time, the prescription to “go out and shop” seems inadequate to the problem.

One has the image of Bernanke and Paulson in the cockpit of an airliner, pulling every possible combination of controls (that seem to be connected to nothing), while the plane hurtles on an uncharted course of its own. From this perspective, it’s comforting to have the former head of Goldman Sachs at the helm, rather than his predecessor, an undistinguished CEO of the America’s worst performing railroad. But then we see how technocratic skill is powerless against the sheer force of a planet in the thrall of fear and greed, which must play out, carrying the rest of us on this wild ride.

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