400 Point Dow Runup

What happened in the markets today?

“News that The Federal Reserve joined with other central banks Tuesday to extend its temporary lending program to provide more liquidity to global financial markets by increasing the funds it will make available and broadening the collateral it will accept beyond the highest rated mortgage lifted financial stocks”

The emphasis is mine. Can you imagine the local banks saying I will loan you $100,000 and rather than requiring an equal amount of some type of real collateral, they would be willing to take, your kids tree house, 2 old chevys, one runs, one doesn’t, and a bunch of IOU's in a paper bag ,from people that the bank doesnt even .

The fed has just finished making and throwing 200 billion dollars at the banks and wall street today. He is willing to take as collateral those security instruments that are loaded with subprime junk. In other words the Fed is saying “ all that stuff you have, that no one will touch with a ten foot barge pole, I will take that as collateral for this 200 billion.”

Now the fed is not the government. But it is the US government, meaning us, who will get stuck with the paper bag and will have to pay off the 200 billion. Not to mention the other 200 billion last week.

But the real problem, is that we have, as people and a government, spent a ton of money, that we do not have for years now. This was a band aid today to try and forstall a day of reckoning before a presidential election. It doesn’t address the real issue that the banks are now really making sure you can repay before they loan out money.

Before they could make stupid loans, bundle them together and low and behold they could always find someone to buy those loans from them. That stopped over night in August. All around the world banks,hedge funds mutual funds have been stuck with whatever was in their hands when the music stopped playing.

So the central banks are trying to help hide what would be even more massive losses, that at some point they would have to declare, by taking it off the banks hands. But we will continue to slide deeper into recession because our economy has been addicted to money just being passed out like crazy to almost anyone who then would spend it on whatever their hearts desired. What the Fed did today will not bring that back.