Federal Reserve chairman Ben Bernanke is moving swiftly to restore liquidity in U.S. credit markets, hoping to stave off a worldwide recession.
The Fed on Tuesday invoked Depression-era emergency powers to begin buying commercial paper — the short-term funding that many companies rely on to pay their workers and buy supplies.
A continuing freeze in such credit markets has made it increasingly difficult and expensive for companies to raise money to fund their operations.
The Federal Reserve’s latest intervention followed a wild weekend that wiped the “We told you so” smiles off European Union finance ministers as they struggled to rein in their own unruly credit markets.
While many Europeans had smugly assumed the U.S. credit market woes were solely the result of excessive deregulation of the American economy, they found their own supposedly more regulated economies caught in cross currents among the 15 nations that share the common euro currency.
That currency union has only a weak central bank, while each member nation retains its own central bank. Thus, a small difference in interest rates, or the guarantees for depositors announced by Ireland and Germany last week, can send billions flowing from one nation to another within the euro zone, a riptide of cash that European leaders struggled to control over the weekend.
While euros sought safe havens, the once-mighty euro fell against the dollar. Meanwhile, President Bush Tuesday offered to meet European leaders to coordinate efforts to handle what threatens to be a global economic crisis.
While Bernanke and his European counterparts struggled to regain liquidity in credit markets, the U.S. stock market ended Tuesday on a down note. The Dow lost more than 500 points, bringing the two-day decline to more than 875 points.
Veteran market analyst Bob Doll, while warning that considerable turbulence remains in the market, concluded, “If there is any good news for the markets, it would seem to be that, from a technical perspective, equities may be poised for a rebound.”
Meanwhile, the Observer reported that some Wall Street banks and financial firms may refuse to participate in the $700 billion bailout package approved Friday because their bosses don’t want to accept congressional mandated limits on executive pay and “golden parachutes.”
To us, that’s great news. To the extent that Wall Street moguls can actually get rich the old-fashioned way — by making money for their investors — then the bailout will remain more an unneeded confidence-building “safety net” than a taxpayer subsidy.
But Wall Street CEOs can’t have it both ways either — if they fail on their own, they can’t expect the taxpayers to offset their losses.
