The duration and severity of the credit crisis has exceeded the expectations of many; I have under estimated its severity and duration. I have compared it to other liquidity crises events like LTCM and Latin debt crises, but the confluence of events, housing and economic slowdown, prolonged its duration.
Despite repeated government policy initiatives which have gone well beyond traditional monetary response, market volatility and ongoing credit losses have become the norm in 2008. A key underlying theme is a loss of confidence in both the balance sheets of financial intermediaries and in securitized investment products, which has pushed spreads to record wide levels.
Some of the unprecedented moves by government included, in no particular order:
- The Fed cutting interest rates to 2%
- Stimulus cheques to citizens
- Liquidity measure by the fed:
- The Term Auction Facility (TAF)
- The Term Security Lending Facility (TSLF)
- The Primary Dealer Credit Facility (PDCF) that included investment dealers, not just commercial banks
- Shotgun marriage between Bank of America (BAC) and Countrywide Financial (CFC)
- Another shotgun marriage between Bears Stearn's and JP Morgan Chase
- Naked shorting rules selectively enforced to few financial institutions
- Remove lending limits on Fannie Mae (FNM) and Freddie Mac (FRE)
- The Fed granting wavers for private equity firms to invest in banks
- Fannie and Freddie nationalization or takeover, whatever way you want to classify it.
Is there any end? Does any of the government measures will stop the ongoing decline?
I do not know. This part of the uncertainty that I will buy if I find a good business. However I have to adjust my expectation that my holding period should be a lot longer than usual.