Bond outlook August 22nd

Do you take comfort in the trio supposed to save the US and the world's finances from systemic failure?.

• Paulson, who only three weeks ago assured everyone that the sub-prime problem would be contained to the housing market
• Dodd, whose main concern is to defend the home buyers who were misled into taking on mortgages they could not afford
• Bernanke, who alone amongst the three, and almost alone amongst US financial leaders, sees this crisis as a chance to restore balance to financial risk and reward, as well as to spending and income

The Fed Window, like the BoE's, has always been open for loans to banks at 1% over the open market overnight rate, yet few seemed to notice it until that differential was cut to 50bps. That was an admirable move, both because it not only addressed head-on the shortage of liquidity in the banking system, but it also allowed Bernanke to stand firm on the Fed rate. Obviously he is under enormous pressure to give way on the Fed rate, too, and even we are beginning to doubt his ability to withstand that pressure.