More Credit from Central Banks Won’t Solve the Credit Crisis

No credit crisis to see here. Move along. Quit your rubber necking. Buy stocks. Ignore the man behind the curtain desperately trying to manage the decline of the dollar without spooking global markets. If need be, bury your head in the sand.

Maybe it’s all over. Maybe the financial system has survived the epic stress of August and we’ll look back on all of this as a bump in the road along the way to seamless and perfectly efficient global capital markets.

Or maybe not.

The day-to-day price movements in the market don’t really tell us much about the long-term effectiveness of central bank policy solutions. All we know—in principle—is that too much credit got us into this mess. Will making even more credit available get us out of it? We’re not counting on it.

Alan Moss is counting, though. Profits. Macquarie Bank’s (ASX:MBL) managing director told analysts that the bank had no significant exposure to subprime sludge in America. He added that the company’s half-year results should improve on last year’s AU$720 million figure. “Earnings will rise to a record on growth in investment banking fees and specialist funds it manages,” reports Robert Fenner at Bloomberg. Selling stocks to the public sure has been a nice little earner for Mac Bank in the boom.

If normalcy really has returned to the credit markets, why did the European central bank loan US$123 billion yesterday? Weren’t there any other banks in Europe ready to loan money to their peers? Show of hands? What’s that? None? Oh.

If normalcy has returned to the credit markets, then why is Bank of England bailing out a distressed bank? “Northern Rock Plc, the U.K.’s worst performing bank stock, will receive emergency funds from the Bank of England to ease a credit shortage sparked by U.S. subprime mortgage defaults,” reports Jon Mennon at Bloomberg.

Ah. We get it now. The credit crisis is over because central banks have made it clear they are going to bail out all the morons, idiots, and numbskulls that made bad loans or bought them. We suppose when you put in that way, you could say it’s over.

Dan Denning
Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

Leave a Reply

1 Comment on "More Credit from Central Banks Won’t Solve the Credit Crisis"

Notify of
Sort by:   newest | oldest | most voted
dubious pete in melbourne
dubious pete in melbourne

Hmmm……I’ve got a VISA card thats also a_real_headache.

Has anyone got the phone number for the Bank of England? It would sure help me with my liquidity issues.

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to