So with a flurry of activity last week the Fed kept the markets from collapsing and in fact caused the week to end with a rally.
As Tom Raum from the AP summarized:
In a remarkable week, the Fed:
--Engineered the fire sale of bankruptcy-headed Bear Stearns Cos. to J.P. Morgan Chase & Co. with a $30 billion loan.
--Offered emergency loans to other securities dealers under terms normally reserved for regulated banks, (specifically, the Fed will accept less liquid assets as collateral for loaned Treasury securities).
--Slashed a key short-term interest rate by three quarters of a percentage point, to 2.25 percent. The cut was sixth since September.
These steps followed moves to lend $100 billion in cash to banks and $200 billion in Treasury bonds to cash-strapped investment banks. The goal was to keep the financial system from seizing up.
"I spent 35 years on Wall Street, have been a Fed watcher for a long time and I have never seen the potential for a more severe credit crisis than this one," said David Jones, chief economist at DMJ Advisors and a former Wall Street economist. "It looks like we turned the corner precisely because of what the Fed did."
So the general consensus seems to be that the markets lived to fight another day this week substantially because the Fed exercised its sweeping authority (granted under 1930 provisions that had not been used since) to keep banks and securities dealers liquid.
What does all this mean for entrepreneurs and those of us in Silicon Valley? Anything at all?
Thoughts on that tomorrow.
(Thanks to www.despair.com for the bear pic.)
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