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The Dow Rocket- by Greg Strid

How about that stock market? In two days the Dow
Jones Industrial Average rocketed higher by over 500
points. On Wednesday alone it added 330 points, or 2.55
percent. That same wonderful day, the tech-heavy
Nasdaq rose by 3.18 percent, and the broader Standard
and Poor’s 500 index increased by 2.86 percent.

The catalyst for this explosive rise in prices came from
the comments made by Donald Kohn, Vice Chairman of
the Federal Reserve. Apparently, the Fed must be
“nimble” at moments such as this one, when the financial
markets are shaking with fear, and the economy teeters
on the brink of doom. And, nimble means being ready to
lower the cost of credit to the nation’s financial institutions
and legions of reckless gamblers.

This was the signal that was so desperately needed
by the battered financial markets. Before the Vice
Chairman’s call to flood the market with liquidity,
the major stock market averages were down 10
percent from their recent giddy peaks. And the
shares of banks and brokerages were sinking even
faster into oblivion.

Yes, it seems that lower interest rates will be the
magic elixir for the increasingly delusional stock
market bulls. As for the rest of us, lowering short-term
rates will do nothing to cure a sinking housing market;
it will not reverse the surge in oil prices, and it will do
little to restore eroding consumer and business confidence.

To top it all off, America’s once respected financial
industry has behaved in an almost incomprehensibly
reckless fashion. They are now suffering staggering losses
on countless billions of bad subprime mortgage loans and
over-leveraged trading bets that have soured. And, the
credit crunch that is occurring is due to the simple fact that
they do not trust each other any more- can you blame
them?

So, the Fed’s announcement that it stands ready to prime
the credit pumps- followed up by the soothing words of
Chairman Bernanke today- will amount to nothing more
than last call on the Titanic. Cheap drinks will deaden the
pain of the chilly waters that lie in wait.

© Greg Strid 2007

© 2007 Splendid Marbles.