Fed in "Panic Prevention" Mode

From Merrill Lynch:

3/12/08 - "The Fed continues to react to events as they unfold, moving incrementally and targeting its actions towards bolstering liquidity in the financial system. This latest experiment, as with the others undertaken thus far, does not address underlying credit problems, does not materially improve the solvency of the institutions exposed to assets under stress, does nothing to put a floor under home prices, and we see no reason based on this for anyone to change their economic or earnings outlook despite the stock market’s initial reaction to this latest initiative."

"The Fed’s move will, at the margin, bolster liquidity in the financial system. In various forms, this is what the Fed has been trying to do since last summer...However, with each passing liquidity “cushion” the Fed provides, it is becoming increasingly evident that there is no quick fix to this credit crunch and asset deflation...In essence, we have an epic credit crunch going on now and events are unfolding at a much faster pace than the Fed could ever have imagined, and so it is increasingly being reactionary in its policy prescriptions instead of being preemptive."

"Just look at what has happened since the last Fed rate cut: the 225 basis points of relief, coupled with the TAF extension, and yet, since the end of January we saw BBB corporate spreads widen to 325 bps from 275 bps; high-yield spreads move out to 780 bps from 685 bps; bank bond spreads jump to 320 bps from 260 bps; and up until Monday’s close, the Dow lose 910 points...We must not lose sight of the fact that the housing downturn has only recently morphed into the first consumer recession in 17 years and quite possibly the worst in over 30 years, and that we are only past the second month of this downturn. What this, in turn, implies for corporate profits and earnings downgrades can’t be very bullish for equities."