Central banks scrambling

The Fed along with Canadian and European Central Banks are flooding financial markets with money trying to drive down interest rates and provide liquidity. The European intervention was their largest ever, $130 billion.

Calculated Risk has more. From the comments there.

The ECB intervention is not at all common, and certainly not at the $130B level. I tend to agree with notions that something is seriously screwed up. One interpretation of money market rates shooting up was that, at the interbank level, banks were losing confidence in their counterparties. I think rather the reverse: banks are losing confidence in their own balance sheets and are looking for cash to deal with their own problems.

Investment banks are desperately trying to avoid repricing their portfolios, because once they do, a balance sheet that appeared healthy just last month may now instead  resemble a smoking crater.

  • DJ

    If I understand what this suggests, banks heavily into residential mortgages– including most neighborhood banks– may be facing a liquidity crisis.

    Stocks seem to be headed downward, bonds are iffy, and now it may not be safe to keep cash in the bank? A friend of mine has a bumper sticker on his pickup: “Ammo: Currency for the new millenium.” Maybe he’s not entirely wrong! Perhaps the prudent investment would be a few thousand dollars worth of 7.62 x 39.

  • FWIW, many investment gurus and stockpickers are currently recommending what stocks are safe now, and Bank of America is one of them.

    OTOH, Wells Fargo has a big exposure to subprime.

  • DJ

    I’ve seen that too. I wonder if they’re part of the “just dandy” crowd. B of A has plenty of exposure in residential real estate– which, as you’ve noted eloquently, will be affected by the subprime ripple.

    Of course, B of A will also be the ones charging you exorbitant interest rates and fees if you miss a payment on the credit card you’re using to survive on because you lost your job. I suppose that if anyone can make a profit on a credit fiasco, it’ll be them.

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