Reading the news feeds, one can't help but wonder if governments know what the heck they're doing. New three-point plans, rate cuts, and proposals are exploding onto the scene like the finale in a fireworks display, often to no avail at stemming the depressing tail-spin of global equity markets. Now, we have a whole lot of smart people working on a whole lot of stop gap solutions, and a very capable Bernanke using his knowledge of the Great Depression to try to make sure monetary policy doesn't make things worse.
Still, it seems through all the noise, the policy makers are missing the core problem - you can cut interest rates and provide increased government funds for short-term lending all you want, but banks still are simply not lending to one another. Robert Pozen of MSF Investments has an opinion piece in the Wall Street Journal today calling for governments to guarantee short-term interbank lending. This, in turn, will provide the time and space for the Economic Stabilization Act to generate more liquidity through the absorption of toxic debt.
It's clear from the increased international cooperation that governments understand and are willing to act (to varying extents) in concert to avoid the worst of the worst scenarios of deep and protracted global depression. But, willingness to act is not enough. Let's hope that global leaders are willing to cut through the noise and the panic to enact the correct combination of stop-gap and systemic measures to limit the damages and strengthen global credit and equity markets for the long term.
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