It's Out of Bernanke's Reach

There's little the Fed can do about the information gap behind investors' panic

If Ben S. Bernanke were a Broadway playwright, the next day's headline in Variety might have been "Fed Chief Lays an Egg." By cutting the largely symbolic discount rate on Aug. 17, the Federal Reserve hoped to calm nerves and return borrowing conditions to normal. Instead, conditions got worse. Terrified to hold anything but ultrasafe securities, investors stopped buying IOUs from corporations and poured their money into Treasuries. A reliable measure of panic—the difference in yields between safe and less-safe securities—widened to the biggest gap in more than 10 years. Five days later, markets remained severely impaired.

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