Wednesday, October 15, 2008

More direct intervention may be needed

Paulson still has a hard time to force the banks to lend to each other.

I have to repeat myself here: there should be a mandate for the banks to conduct their business as usual during an apparent turmoil time.

On the other hand, what the Fed is doing these days is to keep an out-of-body circulation of the money in the financial system when they buy the CPs at a higher-than-the-market price. I don't know how much they need to do this but eventually, they need to sterilize the liquidity they injected when the credit market revived.

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