Jackson Jambalaya

The Market Ticker crucifies Bernacke's recent attempts to solve the crisis. The interest rate cuts will not work. Japan tried the same policy in the 1990's with little effect. Right now the markets and Americans are completely spooked. Lowering interest rates is a useless strategy if everyone is too scared to borrow money. Rarely does lowering interest rates increase the demand side of the equation although raising them too much can hurt demand. One must wonder if the Fed Chairman is capable of dealing with this earthquake. The Market Ticker writes:
"Academia, including most particularly Bernanke, posits that one must "increase liquidity" into a seizure in the markets such as we have now, lest we have a Depression.
The failure of this so-called economic "theory" is that it fails to recognize the root cause of the problem ......
The commercial paper market for non-financial, non-asset-backed entities has not frozen. Nor will it. Those firms have not abused the market and thus have nothing to fear.
It is in fact those firms that have abused this market that have problems, just as occurred with municipalities with "auction-rate" securities.
Borrowing short-term (to lower the coupon required) for long-term requirements is fundamentally unsound. When you do so you place the very life of the entity that does so at risk......
The credit markets, along with consumers and banks, are literally choking on all the liquidity being shoved down their throats. It has done exactly nothing to address the problem and won't because:
Banks and other financial institutions have been repeatedly proven liars in terms of their financial strength and balance sheets. Pick a financial institution and you will find that almost without exception they have claimed "exposure" to bad debt that is a tiny fraction of what is later shown to be accurate. Nobody can fairly evaluate a firm's financial strength so long as this continues; ergo, nobody can have a reasonable degree of trust to lend to such an institution. In addition even settled black-letter law in some regards has been shown to be wantonly (and perhaps feloniously) ignored; Lehman, as an example, is alleged to have transferred segregated customer funds and securities to a Cayman Islands subsidiary shortly before it went under, effectively locking up funds and securities that are supposed to be safe from a bankruptcy proceeding.......
It is not possible to reflate the credit bubble. We must deal with the reality that the bad debt in the economy - no matter who holds it - must be defaulted.
There is no "liquidity trap" into which to fall; we are already in the hole as there is no more capacity to borrow; we have exceeded the maximum safe amount of lending that can be accommodated in the economy. When one is in a hole, the first rule is to stop digging.
Remember, we were told repeatedly that Bernanke's Fed and Treasury's actions would prevent a recession. We were told that the TAF would free up bank lending. We were told that the TSLF and PDCF would prevent more blowups in investment banks after Bear Stearns yet Lehman blew up and the two remaining IBs (after the essentially-forced merger of Merrill) were forced to reorganize as commercial banks to prevent their own implosion....."
http://market-ticker.denninger.net/archives/601-CONgress-Wake-Up-NOW.html