Treasuries Show Paulson 'Bazooka' Misfire; Bonds Gain

[KeepItReal]

Source: Bloomberg

U.S. bond prices show Henry Paulson's "bazooka" fired blanks when he took over beleaguered mortgage-finance companies Fannie Mae and Freddie Mac.

Instead of instilling confidence in the credit markets, the Treasury secretary's plan to place the government-sponsored enterprises in conservatorship on Sept. 7 only served to underscore weakness in the world's biggest economy and the plight of U.S. financial institutions. Lehman Brothers Holdings Inc., American International Group Inc., Merrill Lynch & Co. and Washington Mutual Inc. all plunged last week.

For the first time since May, bond investors from New York to Tokyo are piling into Treasuries on speculation the Federal Reserve may need to cut interest rates by year-end.

"They pulled out the bazooka, yet they only got 24 hours of favorable response from the financial markets," said Thomas Girard, a money manager who helps oversee $110 billion in fixed- income assets at New York Life Investment Management in New York. "That's got to be a little bit worrisome."

Read more: http://www.bloomberg.com/apps/news?pid=20601109&sid=auabPWJalK4E&refer=home

[DallasNE]

1. Cut Rates By Year End?

This is a long over-due correction in bond prices, bringing rates closer to the current 2% Fed rate. Since this move is highly inflationary by devaluing the currency, the next rate move should be up rather than down. It also should make is harder for other strapped companies from obtaining the capital they desperately need so it could accelerate bankrupcies. Will they be able to belly up to the Fed for bailout's as well?

[KeepItReal]

2. The Dollar had started to rally recently now they say it's gonna fall again

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[AtheistCrusader]

3. I support a rate increase as well.

We really have no way to lobby for that can we? How do you pester the Fed to let them know the general population prefers a rate increase, to curb inflation? Pitchfork and torchlight vigils at 20th and Constitution Ave? People on fixed income are getting squeezed pretty hard right now.

[Demeter]

4. Paulson Never Intended to Fix Anything

He ws just trying vainly to maintain the status quo until Bush retired gracefully to Paraguay and all the cronies got their assets out of the country.

The crash is 5-6 months too early, though. So perhaps the right people will get hurt in the worst possible way.