Academic

"Unfreezing"

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

"Unfreezing" is the hopeful word of the day. Everyone has been talking about a "credit freeze," but the credit markets made a dramatic turn early this afternoon. What happened?

The turn didn't happen upon news of the globally coordinated interest rate cut. Indeed, the reaction all morning was negative. One CNBC commentator suggested that the key may have been the President of the European Central Bank Jean-Claude Trichet, who said:

"We are there to be up to our responsibility, we call all authorities or institutions -- whether private or public -- to be up to their responsibilities, and we expect the market participants ... to be themselves up to their responsibilities.

"[Market participants] had clearly underestimated risks in the past, before the turbulences started. I would not like them, with the pendulum going totally in the other direction, to overestimate risks in general."

By the way, Reuters attributes the shift in stocks to "bargain hunting."

Full post as published by Conglomerate on October 08, 2008 (boomark / email).