Today's band-aid from The Fed: lending up to $200 billion in Treasury securities for up to 28 days to primary dealers in the bond market, accepting Fannie Mae, Freddie Mac, AAA-rated CDO's collateral. Pro's acknowledge this is short-term relief aimed directly at the heart of the problem, subprime CDO depreciation.
This delays the inevitable, giving brokers and banks with huge exposure to subprime debt some breathing room to continue to raise cash through asset liquidation, so they don't have to accept "fire sale" pricing and take larger losses due to the urgency of their capital need. This is room to maneuver, so instead of stumbling in haste and looking the fool, they can look respectable as they do what must be done to get more cash. That's nice, huh?
This may be a good time to buy bearish put options on the financial sector (XLF), Citigroup (C), Merrill Lynch (MER), and/or Wachovia (WB), while the euphoria lasts, to profit from the plummet, which shall continue; yes, it shall continue.
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