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It got very bad over the weekend before Martin Luther King day. Mr. Market complained of sweats and chills, said he didn't think he would be able to function on Tuesday. "It's going to be just like it was before:" he said, "I won't be able to come up with any bid prices. The ask is easy, but somtimes I just can't come up with a bid. Like MBS, CDOs, ABS, RMBS, ABCP - I just can't do it. There's nothing there." All of us were worried.
Vad said he didn't need any more rate cuts, he could just go cold turkey like a man and he would be fine as soon as he stopped shaking. Duff Beer said all he needed was a couple of cool ones and he would be fine. Duff also suggested a system for bids, Mr. Market could write numbers on scraps of paper, put them into a beer can, and pull them out as needed. Eileen had been talking to Dr. Soros, and she was concerned that this could be serious. Jonathan thought a couple of shots of volatility would straighten him out in no time.
It was late at night. Mr. Market went to the window and looked out at the stars. It was very quiet. "I never planned to let it get to this point. At first, it made it a lot easier to come up with the bids, as soon as I got a rate cut everything would be fine for a couple of months. But now it seems like I need a rate cut every couple of weeks. I just can't function without it."
Finally we called Dr. Bernanke. He is so considerate, so calm, so concerned and thoughtful. We called him at his house. He came right to the phone and listened to the patient's symptoms. Then he called all his colleagues to consult with them. Soon he called back with the good news: we would give Mr. Market an immediate 75 bps and then check him out at his regular appointment.
Tuesday came, and as soon as Mr. Market got his rate cut, things settled down. By Wednesday, it got kind of crazy, he ran around shouting out bids for homebuilders and banks and all kinds of stuff nobody wanted the day before. I was worried - I thought I heard him on his cell phone, bragging about how he copped a prescription for 75 bps.
So here we are, sitting and waiting while Dr. Bernanke confers with his colleagues. Mr. Market has himself convinced he will get another 50 bps. I overheard him, on the cell phone again, I don't know who he was talking to, it might have been a sleazeball mortgage broker or a rogue trader. But what if Dr. Bernanke comes out and says everything's fine, the yield slope is pointing northeast, just like it should, 95% of the working population is employed, orders for durable goods are up. Suppose it's only 25 bps? What if we hear the dread words: "No rate cut for you." ? What then?
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