Comments on: Do Rate Cuts Really Matter?

By: John Christy

John Christy — Wed, 05 Dec 2007 01:06:00 +0000

I think this is a case of the market not yet accepting and accounting for reality. I understand the reasoning behind the market’s movement upward with the rate cuts, but I think the market may be having a problem seeing the issues that firms are facing with credit.

I’d look for a downshift once firms start realizing and announcing their situations as far as having neutered cash positions and disappointing earnings. It may just take a while for the idea to really catch on in the market’s collective unconscious, or whatever you want to term the atmosphere.

By: Anonymous

Anonymous — Sat, 01 Dec 2007 08:30:00 +0000

I think the main issue is fixing the underwriting model.

I think the insurance industry has it right on this count. Insurance Brokers are rewarded for writing profitable accounts on behalf of insurance companies. Brokers that don't produce profitable accounts are terminated. The interests of the policyholder(insured), the broker and the insurer are aligned & risks are properly priced.

Under the banking model until now mortgage brokers have not been given the right incentives.

By: Sami

Sami — Fri, 30 Nov 2007 15:50:00 +0000

I agree. we were heading in the right direction to resolve and clear a lot of the excesses in the financial system. Also banks started to fix their balance sheets and price risk correctly.

Now the fed will cut rates and will do so again and again to patch things up, allowing banks and the financial system to keep doing what they used to do: accept a lot of risk for little compensation.