antiquary

The Virtue of the Republic

"So essentially, by artificially lowering the price of capital (interest rates) supply dries up, as it does in every market where price fixing is allowed. If you can't earn a decent return on your money, why would you take it out of your wallet?"

The posit you take as granted is that the ceiling set by the Fed is below a decent return. This is not necessarily true; what a "decent return" is will depend on what the alternatives are in the current economy. The general level of paranoia is not a legitimate factor. I think the way you get banks to lend is by showing them that they're being outcompeted by other people or entities who are lending, even if that has to be the Federal government for a time to prime the pump.

The Gloom Talk from the Top Needs to Stop

I agree. The general level of optimism or pessimism frequently becomes a self-fulfilling prophecy, since a lower share price and worse recent public reputation, including on boards like this one, lower a company's credit rating, which increases its cost of borrowing and thus makes a higher share price in the future less likely. This is only one of the ties between the stock market and real-life business.

This is true even without the bubble effect caused by those seen to be making money: short sellers making money produce more short sellers. It's a reverse bubble. Selling pessimism for profit that only helps your shorts take money from other investors in ordinary times is one thing; spreading unhelpful degrees of gloom for profit nowadays when it actually helps to cause higher unemployment is truly evil. They should ban short selling altogether until this recession is over, because it incentivizes people to help prolong it by spreading gloom. Or at the very minimum, they should bar trading firms from including in their investor contracts a requirement that they be able to lend out a shareholder's stocks for short selling, so that an individual shareholder can decide whether his or her shares get loaned out.