Tuesday, March 11, 2008

Margin Calling Forces the Federal Reserve Bank to Rain Liquidity, Game On?

This morning's Federal Reserve action of freeing up $200B for the Banking system exposes the "foundational crack" of the credit crisis to the public even more. We view this as a very positive development for the desperate Investment Banks who kept going back to their high stakes card game without any sense of shame. Shame on them. In an earlier piece (Margin Call.. ing), we mentioned a story about a father scolding his son, Little Johnny for going back and trying to win his money at the same card table. We compared the Bankers to Little Johnny. Now the tables have turned and their father has been revelead. (http://psychologyofthecall.blogspot.com/2008/03/margin-call-ing.html) Instead of scolding the Banks, Benjamin Bernanke is raining money on them in order to save them from insolvency. Although Bernanke is doing the right thing to save their ability to function, is he doing the right thing as far as the forward-looking investor is concerned? Many will argue Bernake is being too nice of a father. They'll say he should have been a stricter disciplinarian and scolded the Banks like, Little Johnny's father. Fundamentally, we view this as a short term quick-fix-positive in that the Banks have more money to play their game, again! So which direction will our readers take after this development? All of these Banks will be voting on direction with free money with what looks like a 28 day period. Will the force of sentiment and psychology prevail over Bernanke's free money? Will stock market forces shrug this off and trade to some true equilibrium price? We'll monitor these developments for our readers and report more feelings by Friday. For now, it looks like game on, thanks to Benjamin Bernanke. We sure wish he had an "s" in his name so that we could write it as "$" ~ Thanks for understanding the Psychology of this Call, have a happy Tuesday.

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