Breaking!!! ==> Fed cuts discount rate by 50 basis points (from 6.25% to 5.75%)

NEW -> Contingent Buyer Assistance Program
The same people who are complaining about Fed intervention, had the Fed made a move that made them rich, you wont' hear any complaints out of them. Whoopee. Fed reserve action is part of the risk that you must accept when buying stocks. =P





But yes, I believe this is a dead cat bounce in stock terms, though in real life when a dead animal is dropped from height, it goes "splat" and doesn't bounce at all.





My trading account went down by about $17k since last month... but fortunately still in the black. As soon as I see a good opportunity, I'll be dumping the stocks to take a cash position.
 
<p>From a post at <a href="http://www.rgemonitor.com/blog/roubini/">http://www.rgemonitor.com/blog/roubini/</a></p>

<p>................................................</p>

<p>Where is Tom Cruise when you need him???





I'd like to draw some parallels to a classic movie:





A Few Good Men





“If your orders were that Private Santiago was not to be touched, and your orders are always followed, then why did you need to transfer him off the base?





Why the 2 orders?”





…and then cinematic magic took over as Kaffee (Cruise) and Jessep (Nickolson) go at it.








Well this is how I see the same scenario with yesterday’s rate cut!





The part of “Kaffee” will be played by Joe6pack


The part of “Col Jessep” will be played by The Big Businesses that are forcing the Fed’s hand.





Kaffee: If your press releases and financial statements said that you company is growing and subprime was contained, and your information is accurate, then why did you need a rate cut? Why the 2 orders?





Col. Jessep: You want answers?


Kaffee: I think I'm entitled.


Col. Jessep: You want answers?


Kaffee: I want the truth.


Col. Jessep: You can't handle the truth





Col. Jessep: Son, we live in a country that has big businesses, and those big businesses have to be guarded by men like Bernake. Whose gonna do it? You? You, Lt. Home Owner? I have a greater responsibility than you could possibly fathom. You weep for middle class, and you curse our 2006 bonuses. You have that luxury. You have the luxury of not knowing what I know. That the middle class’s death, while tragic, probably saves our corporate spreadsheets. And my existence, while grotesque and incomprehensible to you, saves our wealthy buddies in the hedge funds. You don't want the truth because deep down in places you don't talk about at parties, you want me on wall st, you need me on wall st. We use words like Leverage, Liquidity, BLS. We use these words as the backbone of a life spent profiting off of something. You use them as a punchline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very profits that I make, and then questions the manner in which I get bailed out for my mistakes. I would rather you just said thank you, and went on your way, Otherwise, I suggest you pick up a phone, and buy some stocks. Either way, I don't give a damn what you think you are entitled to.


</p>

<p>Kaffee: Did you order the rate cut?


Col. Jessep: I did the job I...


Kaffee: [shouting] Did you order the rate cut?


Col. Jessep: [shouts] You're goddamn right I did!











The unseen part of Lt Kendrick was played by Bernake!


They arrest him too!








Written by Rich H on 2007-08-17 12:21:02 </p>
 
I still think the reason Bill Poole "was not available" for the meeting is because when Bernanke called, Poole told him to go "f" himself and slammed the phone down. Or they did it to allow Poole to save face.
 
<p>Skeptic</p>

<p>Thats an awesome post. Great find.</p>

<p>All the fed did was sweep the dust back under the carpet for another few weeks. It will just make the correction worse.</p>
 
<p>All this does is borrow time. Does anyone really think that in 30 days the credit market will improve enough for CW to sell the loans that they are holding? I am not so sure. Especially if any of those loans already have late payments.</p>

<p>Judging by comments here, other blogs and the MSM there seems to be confusion as to what is happening to Countrywide. I am not saying I know exactly what is going on but I can clear up some of the confusion. I can do a Tantalite thread later this afternoon if it is something you IHBr's would like to read. </p>
 
<p>A lowering of the disc fee won't do anything IMO. I think of the movie Armaggedon and the scene where they say "you could fire ever nuke you've got at her and she'd just smile right back at you and keep on coming."</p>

<p>When the Fed lowers rates, we see the investors run over to the other side of the boat and hop into stocks. This drives the price of bonds down and yields up. When MBS writers figure out what rates they can offer to the would-be bondholders, they have to consider what rates are on other investments, mainly the 10 year note. If the 10 year note yield rises then the bondholders will require a higher rate of return. The increased premium is then passed on to the lender and then eventually to the borrower.</p>

<p>The lowering of the discount rate will be beneficial to banks as they can now borrower money at lower cost. Your average wholesale lender or mortgage broker may in fact be in worse shape. Borrowers are no better off today than yesterday.</p>
 
A lot of people thought it was a sop to Countrywide - to keep them afloat. Sue posted a link to a great Barron's article in comments to today's blog post. I'd suggest giving it a read.
 
<p>I agree even with out reading that article that it was done to keep them afloat. Then you read <a href="http://mortgage.freedomblogging.com/2007/08/17/countrywides-consumer-problem/">this.</a> Here is the link to the <a href="http://online.barrons.com/article/SB118736821516201080.html?mod=b_hpp_9_0002_b_online_exclusives_weekday_r1">Barrons article</a>.</p>

<p>EvaL - Yep that chart pretty much sums it up. I have to do a little fact checking and then I will start a CW thread.</p>
 
Discount rate cuts mean nothing to the actual mortgage market. This is a rate that allows the banks to get fat. Same move used by the fed in the early 90's to save Citicorp and Chase when they ere $9.00 a share. The fed turns a blind eye to the thick spread they book between what they get money from the fed and the return on their loans. This does NOTHING for the end user. Bottom line..crisis will continue.
 
The yield on the 3-month T-Bill, currently at 2.81%, has surpassed last weeks panic low. This may be signalling more news on the credit markets this week. Something is amiss here or perhaps it is just left over tremors from last week.
 
<p>I think people are terrified, not of the floating corpses, but of the possiblity of more floating to the surface. You just don't know <strong>when </strong>and <strong>where</strong>.</p>

<p>I have a T-bill maturing this week. If I send the funds back to EmigrantDirect, will Emigrant Savings Bank be around in a month? I think this anxiety is driving up the bid on short treasuries (thus depressing the yield). Granted, individuals buying bills on TD don't affect the bid but FCB's and institutions submitting competitive tenders do, and I'll wager that they have the same anxious mindset.</p>
 
<p><em>"If I send the funds back to EmigrantDirect, will Emigrant Savings Bank be around in a month?"</em></p>

<p>This same thought caused me to withdraw the bulk of my savings from our HSBC high-interest savings account. I wasn't comfortable with a 3-day delay on getting access to my funds. I checked out ED and some similar options, but I've yet to find anything that gives me interest and instant access should a real run on banks occur. But another question occured to me... If your bank account is frozen due to a run on the bank, how do you cash out your treasuries?</p>
 
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