Are the major brokers/investment banks in trouble?

Last week Bear Sterns, announced that two of their in-house hedge funds were worthless and they would file bankruptcy in the Cayman Islands. Today BNP Paribus announced that they were suspending withdrawals from two of their in-house hedge funds. The Euro weaken relative to the dollar and the dollar strengthened relative to the Yen.

The question for today is: What will the Federal Reserve do to assist the market to recover?



We feel the Fed can do nothing to help the market. The Fed signaled on Tuesday that inflation was still a factor in its policy making decisions. A rate cut by the Fed would only weaken the dollar relative to the other major currencies, and a rate cut would not increase the demand in the residential housing sector. A Fed decrease would lower the reset rate on ARMs, but the decrease would not increase incremental demand in the aggregate for residential house demand.