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A Stock Market Cease-Fire

October 15, 2008 10:10 AM

ABC News' Betsy Stark reports: The furious financial-policy diplomacy of the last week has produced what feels like a cease-fire in the financial markets. Overseas, stocks are trading lower. Here in the United States, they opened lower as well. But we can live with that after so many mornings of waking up to the news that they were in free fall or ready to plunge at the open.

To borrow the medical metaphor, policymakers have stopped the bleeding. We are no longer witnessing a bank a day fail. But if the patient is out of the emergency room, it still requires intensive care and should anticipate a long recovery. The "real economy"-- not to be confused with the financial system governments have been working overtime to save -- has deteriorated during this crisis. It may take more fiscal stimulus from Congress and more interest rate cuts from the Federal Reserve to revive the economy as we move forward.

For now, success will be measured by a different yardstick. The good news today is that the massive capital infusion by the federal government into the nation's banking system, which should begin later this week, is likely to shore up bank balance sheets and public confidence in their balance sheets. LIBOR rates--the rate at which banks make short-term loans to each other and a bellwether of the health of the credit markets -- have inched down a notch. These are positive developments in a system where the flow of credit was frozen and there were paralyzing questions about the solvency of major financial institutions.

But if Rescue 2.0 is already showing signs of being good for banks, it will take a little longer before we know what it does for other sectors of the economy and for the man and woman on the street. Will credit start flowing soon enough and cheaply enough to keep the U.S. auto industry afloat? How far off is the kind of relief that could help the housing market? Rates on 30-year fixed rate mortgages actually inched up in the last week. And what will the massive cleanup of bank balance sheets do to the balance sheet of the United States of America? Estimates of the new potential price tag have risen from $700 billion for Rescue 1.0 to $2 trillion to $3 trillion for Rescue 2.0.

The fever may have broken, but the patient requires serious ongoing supervision. Or, if you prefer sports metaphors, I heard one analyst say recently: "My best guess is we're in the fifth or sixth inning of this game. But it could turn out to be a double-header."

October 15, 2008 | Permalink | User Comments (3)

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As usual the powers that be have screwed up once more and now it is the american tax payer being required to rescue bussines and individuals whose only concern has been how much money can they make(steal)for themselves and their cronies with total disregard for Mr. and Mrs. John Q Publics quality of life.However the american public and tax payer are to blame as well considering the apathetic malaise in which they exsist ,not requiring those responsible for this madness be held accountable.The government has not served its citzens well as they have and continue to allow the perpetrators of these criminal acts to take their spoils and move on with out being taken to task