Sep 19th, 2008 by ravi
The markets work!

So, the USG is pumping $300 billion and more into the financial system to prevent a wholesale panic and meltdown:

Fed and Treasury Offer to Work With Congress on Bailout Plan – NYTimes.com

“What we are working on now is an approach to deal with systemic risks and stresses in our capital markets,” said Henry M. Paulson Jr., the Treasury secretary. “And we talked about a comprehensive approach that would require legislation to deal with the illiquid assets on financial institutions’ balance sheets,” he added.

[…]

The bailout discussions came on a day when the Federal Reserve poured almost $300 billion into global credit markets and barely put a dent in the level of alarm.

Hoping to shore up confidence with a show of financial shock and awe, the Federal Reserve stunned investors before dawn on Thursday by announcing a plan to provide $180 billion to financial markets through lending programs operated by the European Central Bank and the central banks of Canada, Japan, Britain and Switzerland.

But after an initial sense of relief swept markets in Asia and Europe, the fear quickly returned. Tensions remained so high that the Federal Reserve had to inject an extra $100 billion, in two waves of $50 billion each, just to keep the benchmark federal funds rate at the Fed’s target of 2 percent.

But apparently this wasn’t enough for the gamblers in suits:

None of those actions, however, brought much catharsis or relief, with banks around the world remaining too frightened to lend to each other, much less to their customers. This forced Mr. Paulson and Ben S. Bernanke, the Fed chairman, to think the unthinkable: committing taxpayer money to buy hundreds of billions of dollars in distressed assets from struggling institutions.

Rumors about the Bush administration’s new stance swept through the stock markets Thursday afternoon. By the end of trading, the Dow Jones industrial average shot up 617 points from its low point in midafternoon, the biggest surge in six years, and ended the day with a gain of 410 points or 3.9 percent.

So, how do we characterise this utter failure of private financial entities, requiring the public to step in save the world from their stupidity? Here’s how:

“The markets voted, and they liked the proposal,” said Laurence H. Meyer, vice chairman of Macroeconomic Advisers.

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