Lehman, WaMu Down Again: Will Fed Act? « The Brian Sullivan Blog

September 11, 2008 09:11 AM EDT by Brian Sullivan

Lehman, WaMu Down Again: Will Fed Act?

Lehman Brothers (LEH), Washington Mutual (WM) and other banks like Merrill Lynch (MER) are tumbling again.

The credit default swaps (basically a measure of risk on the bonds of a company) are soaring on Lehman, which in plain english means that the bond market is also pricing in much risk on the company.   We know the stock market has already done this by selling the stock to where it is today.

So will the Federal Reserve act? While the chances are still small, there is growing chatter on Wall Street that given the massive stock losses in the past few days there may be a need for the Fed to jump in and ease credit by cutting its overnight lending rate.    According to Fed Funds Futures, odds of a rate cut have increased in the past 24 hours, though still remain small.   The lastest data (as of 9:30am ET) puts a 19.6% chance on a rate cut at the October 29th FOMC meeting.    That's up from less than 5% a few days ago.

Remember too that the discount window remains open, and banks have rather quietly continued to access it from time to time. Yesterday there was a $28 billion dollar auction.   With the window open but it not helping, the Fed may be forced to act in a more severe manner.

Something to watch ... and remember that if there is any Fed action it will likely have an impact on the dollar as well.

7 Comments

B Scott

Will the Fed act? They,re the best actors in this whole play, they act like this whole mess is a big surprise, fact is they created it.They should dress Bernenke up like Nero and give him a fiddle.

September 12, 2008 at 6:47 pm

Jane Doe

I too work for WaMu. Yeah mtg wise we have been hit but retail wise we are pretty strong.

September 11, 2008 at 10:02 pm

Super Sucker

Seems like I pay WAMU a small fortune every month. Am I the only sucker still doing it?

September 11, 2008 at 7:56 pm

John Doe

I work at WAMU so I sure hope that if we are not going to be around soon someone will let us know. I have a mortgae and a family to support!!

September 11, 2008 at 1:02 pm

Bob J

Boy this is going to hurt. Stock market is acting as if it just got a bad kick between the legs. The kick is so hard that it won't recup from it. Say hello to depression. Next 10 or 15 years will be a nightmare for all

September 11, 2008 at 11:45 am

KrazyP

Lehman and WAMU are history. Check out the FHLB system for their weakness (roughly 50% of their investments are in subprime rmbs and alt A rmbs). Average S&P P/E ratio at 25. The next 6 months will be interesting. My guess is the worst of it will be after the election, but it could come earlier.

September 11, 2008 at 11:24 am

Justin

It's hitting the fan. Get the guns and ammo ready. Stock up the shelves. Trade dollars for survival gear. Paper is worthless as far as I'm concerned. Dump them now before China and Japan do. You know Bernanke isn't going to let this bubble economy deflate. He'll rain $100 from the sky before he'll let an Ibank fail.

September 11, 2008 at 10:02 am

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Brian Sullivan joined FOX Business Network (FBN) in April 2008 as an anchor. He co-anchors the 10am-12pm ET hours of the FOX Business block. Prior to joining FBN, Sullivan served as an anchor for Bloomberg Television where he hosted the programs Morning Call and In Focus.
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Lehman, WaMu Down Again: Will Fed Act?