Thursday, August 30, 2007

Markets on crack

Kevin Duffy has penned an interesting review of recent Fed rescue missions and their resultant effects on the stock market.

"Financial Markets on Crack" takes a retrospective look at the Fed's tactical eases over a 9 year period (1998-2007), and finds a marketplace convinced of the Federal Reserve's duty to keep the markets and the economy pumped full of (credit) drugs.

An excerpt from Duffy's article:

This is now the third time in 9 years the Fed has acted as "fireman" as many believe is part of its job description:

You can't just say 'we told you so' and turn your back. The Fed is the fireman of our economy, and there's a fire and they're gonna put it out. That's their job. Their job is not to sit around and scold people for making bad loans [and] for other people for buying those bad loans. The Fed's job is to put out the fire.

- Peter Yastrow, market strategist, MF Global, August 9, 2007

Duffy goes on to review the timing and effect of these past three rescue missions, and questions whether this latest Fed stimulus will work. One thing is certain; Duffy does not find these actions to be indicative of a healthy market or economy.

"Our monetary addiction is a progressive disease now in an advanced state."

As I wrote in Tuesday's post, "Fed bailouts = capitalism?", these actions and interventions do not reflect well on our system of "free markets" either.