We live in an unusual time as far as the economy is concerned. Example 1: the Federal Reserve has injected a total of 120.5 billion into the US economy in the last two weeks. (Here is an article about the latest injection of 17.25 billion: http://www.breitbart.com/article.php?id=070823142033.tdr8v597&show_article=1 .) The Fed has also cut its discount rate by .5% after having had one director say that such a cut would only come if the iconology were in dire circumstances.

Example 2: today’s US stock market is down after having been trading higher this morning because the Bank of America announcement that it was injecting 2 billion dollars into Countrywide (which announcement caused the initial run up early today) may not be enough to save Countrywide from its bad lending practices. This concern was spurred by an interview with Countrywide’s Chief Executive in which he stated that “markets are in ‘one of the greatest panics I’ve ever seen in 55 years in financial services.’
Mozilo said he can see the U.S. economy slowing down enough to concern banking regulators about what will happen next.” (Here is a link to that article: http://money.cnn.com/2007/08/23/news/companies/countrywide_ceo_outlook.reut/index.htm?postversion=2007082312 .)
(Here is a link to Schwab for that piece of information: http://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/schwab_market_update?cmsid=P-1454182&lvl1=research_strategies&lvl2=market_insight .) Also from Schwab: “Under the terms [of the deal with BoA], Bank of America will purchase $2.0 billion in non-voting convertible preferred securities yielding 7.25% annually. The shares can be converted into common stock at $18 per share, with restrictions on trading for 18 months after a conversion.

Although Countrywide must still deal with rising foreclosures and delinquent loans, Bank of America’s action is helping to alleviate liquidity worries that have swirled around Countrywide, which is one of the nation’s leading originators of home mortgages.” Again, one wonders if it is wise policy to save a company from the consequences of its own bad lending practices.

Example 3: the Fed has announced that it will redeem 3 billion of T bills to increase its liquidity at its lending “window” where banks can borrow from the Federal Reserve. (Here is a link to that article: http://money.cnn.com/2007/08/23/markets/fed_tbill.reut/index.htm .) Odd times indeed. Mike