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Short Cuts: A lemon crisis, but is it „Rated R“?

a lemon-tree
Even the most beautiful things turn sour one day (via borzikako, Flickr)

The credit-crunchsaga continues, as banks face some tough days ahead: As $139bn of commercial papers will be due in the next couple of days alone in Europe, with the banks themselves having to pay it back, credit institutes have been hoarding money, drying the liquidity of the market. At the same time,Dollar’s 15-year-low, news of August employment in the U.S. having fallen despite a healthy economic growth, sales of existing homes having plunged by 12.2%, and a crisis in the construction industry having begun to take shape are fuelling fears of the “R-word”: Recession.

But on Wall Street, hopes are still high that party may not be over yet: Desperately longing for a sign of Fed-chairman Ben Bernanke, traders are looking for a cut in interest rates to fuel the market with new liquidity. As Bernanke’s step to lower interest rates is highly likely, the Bush administration and the Democratic majority in Congress play their parts to avoid mortgage crisis’ big house-owner chuck out (also taking into account that the next Presidential election is not too far away): The “lemon crisis”, it seems, does not have to be solved by the sellers who own the bad lemons, but by American taxpayers, as the Federal Housing Administration (FHA) might at least save some 100,000 heavily indebted property-owners by lowering pre-conditions for the FHA mortgage-loan-insurances.

Whether banks will be able to bail out and continue partying will mainly depend on the consumer climate, in the end. But still, the party might not feel as ecstatic as it did before: Being based on mistrust and the inability to figure out which bank has lost how much, the lack of liquidity might linger on longer than expected. This means bad news for stock traders’ boni, as times of high-profile mergers and stocks sky-rocketing because of takeover-fantasies are over – for now, that is.

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