Whyfor a big rate cut?

CNNMoney (although not the best financial analysis, with Lou Dobbs as their anchor) is saying that Wall Street is demanding a interest rate cut now, and far more than the 50 bps currently expected. The economy seems to be in trouble, and financial institutions are still announcing huge write-downs, so stimulus is necessary. But so long as banks are potentially low on capital, they will not make loans. Therefore, low interest rates may be meaningless. The main advantage of low interest rates is that banks can borrow from other banks or the fed instead of relying on deposits, so the high APY on deposits (4% or more) will disappear. Depositors will be forced back into the capital markets for yield (assuming their risk appetite returns), sending the market back up. Sounds like a fine fix for brokers/traders/fund managers, but I'm not sure whether it will stave off a recession.

Is Moody's Becoming too Reactionary?

The rating agencies are justifiably under fire for mistaken assumptions w/r/t mortgage-backed bond ratings. Is Moody's trying to distract the public by their latest salvo (that US credit rating may fall below AAA by 2010 because of rising costs of social services). As a measure of credit rating, I'm not sure how the US government could ever fall below AAA so long as they issue debt in a currency that they can print.

Unfortunately, we should be running smaller deficits now (and paying off a sizable chunk of our debt) while baby boomers are mostly still working. But that has never been their way.