Economist John Ryding of RDQ Economics gives a pretty smart rundown of what action should come next to strengthen global credit markets. I paraphrase:
1) We still need recapitalization of the banks (hats off to Gordon Brown for the British plan for capital injections).
2) Immediate action by Treasury Secretary Henry Paulson to use or rework the authority of the TARP would be extremely welcome to also recapitalize banks.
3) A term lending facility for troubled assets would be more helpful than purchases of those assets.
4) The G-7 central banks need to guarantee interbank loans to boost confidence, bring down Libor, and unfreeze money markets.
Ryding's bottom line: "This crisis is not about the level of rates or the quantity of central bank liquidity. It is about a lack of confidence, bad assets eating up capital, and a lack of transparency. The coordinated rate cut is a good first step, but it must be followed up by other actions of the type we have described if we are to push the economy to the moderate recession outcome and away from a long, deep recession lasting through 2009."
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