Fed Underestimated Spread of Debt Crisis

Fed Underestimated Spread of Debt Crisis By Craig Torres Aug. 29 (Bloomberg) --At the time of the Aug. 7 meeting, the stock market had lost about $1.3 trillion in market capitalization. On July 24, Countrywide Financial Corp., the biggest U.S. mortgage lender, reported its third straight decline in quarterly profit, as even prime borrowers struggled with debt payments. The earnings release showed that delinquencies were spreading into less risky loans. "The minutes indicate they underestimated how severe the problems were in the credit markets,'' said Scott Minerd, chief investment officer at Guggenheim Partners LLC in Santa Monica, California. Injecting Cash Policy makers have employed a range of tools since their last scheduled meeting to ease the credit crunch. The Fed has also allowed banks to channel discount-window borrowings to their securities subsidiaries to help improve clients' access to capital. Officials clarified that they will accept as collateral securities such as asset-backed commercial paper sold by special-purpose companies. Given the way the market is, I think it would be very difficult for the Fed to avoid cutting its target rate next month, said John Silvia, chief economist.