Global Coordinated Rate Cut

The Fed, European Central Bank, Bank of Canada, and Sweden's Riksbank each cut their benchmark rates by 50 basis points.  China's central bank also lowered its one-year lending rate by .27%.  The drastic interest rate cuts, rumored for days, came on the heels of severe strains in the money markets and plunging global stock markets after dramatic government intervention around the world has failed to stem the crisis.

The UK will invest directly into its four largest banks and provide other funding totaling $87 billion.  The announcement was anticipated and caused a complete rout in British bank stocks yesterday.  The Nikkei plunged 9% and Indonesia halted trading after its benchmark index tumbled 10%.  Russia pumped another $36 billion in loans to its banks.  Promises of nearly $150 billion from the Russian government have failed to stop the Micex from plunging yet again.

Although futures are up after the rate cut announcement, it is hard to imagine that somehow this act is finally going to solve the crisis gripping the global markets.  It doesn't matter how low interest rates are if banks refuse to lend to each other because of counterparty credit risk fears.  The extraordinary actions that the Fed has instigated through a series of new lending facilities have only made banks more reluctant to lend to each other.  If you can get all of your financing through the Fed, why borrow from a financial institution who may or may not be around in six months?  The Fed and Treasury are praying that something at some point will restore confidence in the banking system again.  But if the TAF, TSLF, PDCF, CPFF, TARP, and various other loans to AIG, FNM, and FRE can't stop the meltdown, how on earth is another 50 basis points going to do the trick?