I'm running out for awhile...but wanted to throw in a last response.
You and I probably disagree as to the reason banks are hoarding their money.
I believe it's because many of them are deathly afraid of their exposure to the CMO's they've been investing in (sometimes self-sponsored ones).
They know that they're about to take an enormous hit from this entity that had been 'off the books' for them, but now will be coming home to roost.
They can either throw more money at it if the form of loans to keep the patient alive a little longer - or they can have the CMO go belly-up and have to realize the write-down on their books.
Either way, it takes cash - and lots of it.
That is why I believe that a 1/2 point rate cut will do nothing to free up liquidity in the market place. Banks are scared - and all they know to do is hoard their money.
Yes, they are afraid of the losses they have on their portfolios. They are also afraid to lend today to other banks that may be out of business tomorrow.
They know that they're about to take an enormous hit from this entity that had been 'off the books' for them, but now will be coming home to roost.
You mean SIVs?
That is why I believe that a 1/2 point rate cut will do nothing to free up liquidity in the market place.
It certainly won't reduce liquidity.
Banks are scared - and all they know to do is hoard their money.
You bet. And if we can't help them get over that fear, we're all in trouble.