Smith Faculty Opinion Article

September 2007

By Dr. John A. Haslem, Professor Emeritus
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 Haslem

30 Seconds Outlook
September 2007

Don't panic: We've seen this kind of market crisis before. Larry Swedroe, Buckingham Asset Management and BAM Advisor Services LLC, in IndexUniverse.com, August 20, 2007.

The Fed has implemented what is prudent at this time to restore confidence and liquidity to the markets. The loss of liquidity arose from use of short-term debt to finance sub-prime mortgage-backed securities of questionable value. The Fed actions are also designed to provide market liquidity for what are otherwise sound companies.

At the same time, the Fed continues its focus on maintaining sustainable economic growth. While lowering the Fed funds rate would help restore residential home values, the cost would most likely be increased inflation in an economy that is otherwise healthy. The Feds choice remains to be seen, but inflation is the stated enemy.

by John A. Haslem

John A. Haslem, Professor Emeritus of Finance, University of Maryland.