Bone China, Anyone? FED Hangs Tough?
We are struck by the FED's definition of hanging tough. Mr. Lacker, the President of the Federal Reserve Bank of Richmond, and a staunch anti-inflation hawk, yesterday stated publicly that Federal Reserve regional banks would accept boat loans as collateral. This is reminiscent of FED approval of banks loaning money to finance margin stock speculation in the 1920s by accepting bone china as collateral. Bone china lacks a certain "liquidity" as they say. Thus, when the market crashed in 1929 and banks called in their loans, borrowers declined to pay up, and the banks were unable to sell their "china collateral."
THE FED HAS CAVED. Both Bernanke and Lacker have made this crystal clear. Having yielded to the inevitable on substance, they are clinging desperately to their "dignity". This consists in holding off on a formalized Fed Funds rate cut until the September 18th meeting.
Whether they formalize on or before September 18th is irrelevant. THE LIQUIDITY FLOOD HAS BEGUN.
ALL ABOARD!!! THE EQUITY BULL RUN HAS BEGUN!
PS -- If, as we think likely, the FED's steps thus far to resolve the seizing up of the credit markets prove inadequate, it seems clear that the central bank will indeed take the most drastic measures, including even those that we have recommended.
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