Are the Proposed Government Solutions Helping the Credit Markets?

Are the solutions presented by the Government and the Federal Reserve Board actually working? Well, if the market were voting, the answer would be no. None of these solutions presented by the Government have given the markets any confidence.

Yesterday was just another example of that as credit fears and potential inflation fears continue to grip the market with the S&P 500 dropping another 1.5%, leaving the stock market up by around 2% for the year.

The Federal Reserve Board has cut rates three times now. Treasury Secretary Hank Paulson unveiled some Super Fund coordinated by banks to stabilize the credit markets. Then the President unveiled a plan that is intended to save homeowners from rising interest rates on adjustable rate mortgages and in turn reduce the number of homeowners who are losing their homes.

There has been a consistency with all three actions. First, they arrive with a big fan fair. Second, the stock market reacts positively to the announcement. Third, the market quickly gets over the fanfare and continues to drop. Fourth, we hear very little about these programs going forward and have very few details to go on.

Unfortunately, there is not much that the Government can do to fix the mess that they sat by and allowed to develop.

For instance, the President’s new plan makes for a great political sound bite. However, in reality, there are too many moving parts and too many parties involved to just announce that all homeowners who fit a certain criteria will have their interest rates frozen. It is just not that easy.

So are there really any good answers? Yes, the best action is to allow the market to work through this on its own. That is the only viable solution so that we can get past this and go forward.

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