Central Banks move its forces to beat the global (US) problem

Special Coverage

Dollar/Euro "Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in U.S. dollar short-term funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures."

Above, you have read the press release published by the six biggest Central Banks to inject large amounts of USD liquidity in order to save the global financial market. Central Banks are moving due to the private banks reticence to lend money to other - nobody has confidence in the neighbor - and they pull all the efforts, more than US$ 125 billion, to prevent the fiscal situation from deteriorating even more. They also stated appropriate actions would be added in the future depending on the market situation.

According to Tatsuya Kawanishi, FXstreet.com's Junior Advisor, the market reaction was text bookish "risk aversion strategy." Soaring gold price indicates warning bells for national bonds. The risks of USD crash and bonds crash are barely avoided by the coordinated central banks intervention. Major impact in the Forex market has not been seen so far while global stock markets have been sinking.

Yesterday, CNBC said that Morgan Stanley may be in talks to possibly be acquired by China's CITIC (in fact, this Chinese bank owns 9.9 percent of Morgan) though Morgan is also considering a merger with Wachovia or another US bank.

Alberto Muñoz, Forex Advisor at FXstreet.com, said that Goldman Sachs is near bankruptcy. Their Credit Default Swaps (similar to an insurance against bank default) were priced yesterday at 344 basis points which means that to insure against a 1 million dollars loss you have to pay 344,000USD, a very expensive premium (remember that Lehman Brothers CDS were above 1000 basis points and Morgan Stanley CDS are now at 500 basis points).

Alberto concluded: "I had lunch with friend who works as a hedge fund manager and told me that every time a client takes out the money from Goldman there's somebody crying in the investment bank. Maybe any other US bank will rescue Goldman but it's not sure..."