ROI: Return of Investment?

Yesterday saw markets tumble across the globe on renewed sentiment that the credit squeeze which shrunk third quarter profits at major banks is still at play. Despite a Federal Reserve Bank rate drop from 4.75% to 4.5% which would normally favor stock, fear of the credit crisis still looms. In fact, by lowering rates Ben Bernanke may have fallen on his own sword.

Investors are increasingly concerned about the return of their investment thus perpetuating seizure in the credit market. One must wonder at the effectiveness on the markets of a monetary policy based largely on interest rate administration. The evidence so far suggests that the credit markets have paid scant attention to central banks' attempts to encourage interbank lending at moderate rates.

Mitsubishi UFJ Financial Group Inc., Japan's largest bank, is rumored to be short of capital and the bank was punished by the markets. Bloomberg reports that this morning UFJ stock fell the most for three months. With Northern Rock back with the familiar begging bowl, investors are understandably nervous about the number of bodies underneath the liquidity tide. There will be many stiffs to count when the tide recedes.

Banks, unable to establish the full extent of the wreckage, are unwilling to lend out for fear of losing their funds. Determining the Return of Investment has never been harder.

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