Perhaps suspicion - and a good dash of paranoia - is to human nature what secrecy and the need to know more than others is to central bankers. A glance at blogs and newspaper sites worldwide showed a certain common thread in some of the commentary over the ECB’s surprise injection of funds into the markets and the Fed’s follow-up in its open market operations:
John Durie, financial columnist for The Australian newspaper:
This is your captain speaking …
In times of market volatility, financial markets look to central banks like aircraft passengers do to their captains when the plane gets a bit rocky. They want soothing words that everything is fine and easily explainable.
The US Fed did just that after Wednesday’s board meeting. But all its good work was undone by the European Central bank and the Fed when they pumped in an extra $154bn into their respective monetary systems overnight in the wake of more sub-prime loan problems revealed at French Bank BNP Paribas and US investment bank Goldman Sachs.
The move raised the obvious question, what do they know that we don’t?
David Goerz, chief investment chief at HighMark Capital Management, speaking to Reuters:
“You had a panic in Europe, with the ECB putting so much liquidity into the system, everybody thought, ‘Gee, am I the greater fool here? Do they know something that we don’t?”‘ said David Goerz, chief investment chief at HighMark Capital Management.
Gillian Tett, the FT’s capital markets editor, in her Friday column:
One explanation - and the one alarming many traders - is that there is something truly nasty lurking out there in relation to credit losses that only the ECB knows about. If so, let us all pray that it does not involve any of the big dealer banks.
Post on Moon of Alabama blogsite:
Another rough day on the subprime front:
People want to sell their funds because losses appear, suddenly everyone wants out. But there are no buyers and the value of the assets are thereby undetermined. The markets freeze up and suddenly there is no value at all. This is the positive feed back loop on the lenders side. The ECB was smart today to recognize this immediately. It reacted quickly and inserted liquidity so at least the big banks could go and buy some stuff so the markets didn’t freeze up. I guess the ECB knew what was coming and was prepared. What else do they know?
