This is definitely one of those don’t miss posts from Market Ticker with all the bells and whistles. Karl puts the puzzle pieces together; ‘actions speak louder than words’. Make sure to go over and read the entire article; it is eye-opening.
Remember this? $125 billion of “slosh”, or excess liquidity, drained from the system in the four days from 9/19 – 9/24/2008.
To put this in perspective that was a drain of sixty-five percent of the total excess liquidity in the system – a “starvation diet” if you will – and that withdrawal was an intentional act!
The above is an irrefutable record of what The Fed actually did.
Remember that Bernanke’s argument at the time was that the credit markets were suffering from a lack of liquidity. That is, there was no problem with firms actually being bankrupt, but they were illiquid.
If that’s true why did Bernanke intentionally drain $125 billion from the system – two thirds of the market’s total excess liquidity – instead of adding to it?
What did the market do after The Fed pulled $125 billion in system liquidity out over the space of four days?
Do you remember?