A couple weeks ago I jokingly asked if the Fed was going into the airline and auto business. Now I’m afraid I was right.
After Lehman failed, a large money market fund went down in price. That’s not supposed to happen, and there’s been a run on these funds. This in turn has made it really tough for a lot of companies to borrow short-term money. This is a big part of the credit crunch.
The Fed tried a fund guarantee, but that hasn’t worked. So now they’ve stepped in to loan short-term money to companies like GE, Kellogg, or Caterpillar. Yikes! This is just the latest chapter in the make-it-up-as-you-go-along rescue that Bernanke and Geithner are putting together.
But a piecemeal approach won’t work. What’s needed is a clear vision of what’s wrong and a systematic plan to fix it. In the meantime, having the Federal Government loan money to industrial America is dangerous. Because what starts as a government rescue ends as a political football. And what happens when the Fed owns its first big failure?
Douglas R. Tengdin, CFA
Chief Investment Officer
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