ain't no fortunate son

Bracing for Another Round of Credit Related Woes

The author's quote:

"What really irks me is that despite massive central bank liquidity injections into the financial systems since last December, interbank lending rates remain elevated. LIBOR, or overnight lending rates, are still too high. Right now, they're 81 basis points above the Federal Funds target 2% rate.

It's the same story in Europe. Banks aren't lending"

But what people don't understand is, these injections were NEVER about LENDING... they were about TRADING, specifically using the house (taxpayer) money to keep a bid under the major indices at a critical time - the pre-election months.

How to do that? Why, give the major financials an incentive, namely vast sums of cash to trade these markets with, and let them run amok jacking the markets up and down, trading the volatility, making huge profits on both sides, but only as long as they kept it stable, steady, flat, because we can't have any crashes now, can we boys?

When the FED threw open the discount window to the investment banks (read that stock brokers) for the first time since at least the Great Depression, they knew the money wasn't going to get lent out, but rather that it would go into the trading accounts of the brokers and thence to the hedge funds they had spawned. Which was just what the FED and Treasury wanted, and I would submit the word got quietly passed to that effect through the good old boy's clubs on Wall Street loud and clear.

And anyone who has watched the volatility ever since has seen dozens of multi-hundred point up AND down days in the markets, many in consecutive days, generating huge trading profits on the long and short side for the world's largest day traders - the brokers and hedge funds.

But where are the markets after all this incredible, historical volatility? DEAD FLAT EVEN. And still the credit markets scream for relief.

Take this week... we had a 240 point down day, a 212 point up day, and a 170 point down day in what is supposedly the quietest week of the year. Yet vast amounts of money were made by those trading (and influencing) the swings. And yet the net change in the averages was virtually nil: Dow and Wilshire down 84 and 60 points respectively, SPX, NYSE Composite, Russell 2000 and Mid Cap 400 basically flat.

Shakespeare comes to mind... "All sound and fury, and signifying nothing"... which is just what the powers that be want.

And the vig on those "loans"? As Old Limey inferred, keep the PPT and the Invisible Hand stabilizing the markets, its an election year, the republicans are in deep trouble, and a crash in the markets just before the election would be their final disaster.

The huge injections of liquidity by the FED never went to business, consumer or even overnight lending, capital repair, or any sound economic purpose whatsoever.

But they were never supposed to.