Jul 21 2008
Anyone Have a Magic Wand For the Economy?
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IndyMac has failed. Fannie Mae and Freddie Mac are floundering. Stocks are diving in a bear market.
We have U.S. leaders who appear to have run out of options to rescue our economy and we are teetering on the brink of recession.
California-based IndyMac (specialized in a type of mortgage that usually required only minimal documents from borrowers) has become the third largest banking failure in US history.
Some analysts are calling on the Fed and the Bush administration to take decisive action to prevent the situation from deteriorating. Historically, the tipping point of an economic crisis is almost always more connected to psychology than fundamentals. People panicking over a bank’s insolvency would usually force a sort of self-fulfilling prophecy.
The Bush administration is urging Congress to temporarily increase the lines of credit to Fannie and Freddie and to let the government buy their stock. Meanwhile, the Fed has also offered to let the companies draw emergency loans.
Though these government efforts to help Fannie and Freddie could temporarily give markets a boost, investors need to accept the fact that the big rate cuts have been made, the market and the economy are in serious trouble, and we are just going to have to tough this one out.
It’s believed that the Fed may cut rates again by another half a percentage point (to 1.5 percent) but not until later this year or early next year.
One response so far
economic upheavals and tumbles are a present day reality for all economies!