Dr Bernanke's tonic a cure? It's best not to bank on it
A day is a long time in the City at the moment. On Monday, after the bailout of Bear Stearns, comparisons were being drawn with the Wall Street Crash of 1929. Panic and capitulation were the order of the day as markets crashed. Just 24 hours later, they rallied and, boy, did they rally. The Footsie was at it again today.
So, was the collapse of Bear Stearns the bottom of this crisis or is this just a temporary bear-market rally as traders close positions ahead of the Easter break? Steering us through the turmoil is US Federal Reserve chairman Ben Bernanke, who last night cut interest rates by three-quarters of a point to just 2.25%. The good doctor has also given banks direct access to the Fed's emergency lending facilities - a measure not seen since the Great Depression (a subject in which Bernanke specialised as an academic).
Although not the full 1% many were hoping for, the cut was tonic enough following "better-than-expected" - or should that read "not-as-bad-as-feared"? - results from Goldman Sachs and Lehman Brothers.
Such has been the deterioration of the banking system that combined writedowns of $4 billion (£1.99 billion) and a halving of profits were considered "good news". But there was also room for scepticism. The results, as Robert Lagravinese of Trinity Funds in New York said, look "almost too good to be true". Their timing was certainly impeccable.
If the panic was overdone, any euphoria now is certainly misplaced. The one thing the City can be sure of is uncertainty. The Fed is taking measures not seen since the biggest financial crisis of the 20th century, but the fear is these address the symptoms, not the cause of the illness. It would be a brave soul who suggested the crisis is anywhere near over.
