THE CENTRAL BANKS' BAILOUT OF SHORT-TERM FUNDING MARKETS
ON 12-DEC-07

PSYCHO-POLITICAL ANALYTICS

Five central banks, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank adopted measures to reduce "pressures in short-term funding markets" on 12-Dec-07.^1-6 The Federal Reserve established a temporary $40 billion Term Auction Facility (TAF) scheduled for 17-Dec-07 and 20-Dec-07.^1-2

What forced them to intervene?

The psychological state of mind of people around the world during the 7-day time period prior to the bailout was as follows:

• People were UNHAPPY (MISERABLE) 100% of the time;
• People were in PAIN 75% of the time;
• People were IRRATIONALLY GLOOMY 25% of the time;
• People focused HIGH ATTENTION on DECEIT 42.9% of the time; and
• People focused HIGH ATTENTION on LAW 28.6% of the time.

Central banks had no choice but to act.
 

MI2 data on the push for globalization by G7 governments, the World Bank, the IMF, and transnationals, before 9/11, indicate unequivocally that high attention focused on LAW can breed violence. The mixture of UNHAPPINESS, DECEIT, and LAW can be a very dangerous cocktail.

Did central banks succeed?

Within 7 days, the central banks' intervention:

• Reduced UNHAPPINESS from 100% to 50%;
• Reduced PAIN from 75% to 58.8%;
• Replaced IRRATIONAL GLOOM with IRRATIONAL EXUBERANCE;
• Reduced HIGH ATTENTION focused on LAW from 28.6% to 14.3%;
• But Increased HIGH ATTENTION focused on DECEIT from 42.9% to 57.1%.

 The tables below summarize our key findings. Three Pre/Post bailout periods are investigated: 12-Dec-07 (0:00 AM PT) ±7 days, ±30 days, and ±60 days.

 

EMOTIONS PRE/POST BAILOUT
-60 Days	-30 Days	-7 Days	12-Dec-07 (00:00 AM PT)	+7 Days	+30 Days	+60 Days
		100.0%	Unhappy	50.0%
	55.0%			71.4%
46.2%						64.5%
		50.0%	Angry	0.0%
	20.0%			35.7%
15.4%				25.8%
		25.0%	Confused	50.0%
12.8%				22.6

 

FEELINGS PRE/POST BAILOUT
-60 Days	-30 Days	-7 Days	12-Dec-07 (00:00 AM PT)	+7 Days	+30 Days	+60 Days
		75.0%	Pain	58.8%
	59.1%			70.9%
62.5%				65.8%
	22.7%		Hostile	30.9%
25.0%			Entangled	25.3%

 

IRRATIONALITY PRE/POST BAILOUT
-60 Days	-30 Days	-7 Days	12-Dec-07 (00:00 AM PT)		+7 Days	+30 Days	+60 Days
		Gloom  25.0%		Exuberance 8.8%
	Exuberance 4.1%			Gloom 0.5%
Exuberance 16.3%					Exuberance 1.3%

 

ATTENTION PRE/POST BAILOUT
-60 Days	-30 Days	-7 Days	12-Dec-07 (00:00 AM PT)	+7 Days	+30 Days	+60 Days
		42.9%	Deceit	57.1%
	26.7%			46.7%
20.0%				30.0%
		28.6%	Law	14.3%
	26.7%			13.3%
16.7%				6.7%
		28.6%	Bankers	28.6%
	10.0%			30.0%
11.7%				18.3%
		28.6%	Money	28.6%
15.0%				23.3%
		0.0%	Arithmetic	28.6%
13.3%				26.7%

 

Dr. Edward E. Ayoub
Toronto
February 14-15, 2007

 

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¹ Federal Reserve and other central banks announce measures designed to address elevated pressures in short-term funding markets. Board of Governors of the Federal Reserve System, News Release, 12-Dec-07, http://www.federalreserve.gov/newsevents/press/monetary/20071212a.htm.

² Term Auction Facility. Board of Governors of the Federal Reserve System, News Release, 12-Dec-07, http://www.federalreserve.gov/monetarypolicy/taf.htm.

³ Measures designed to address elevated pressures in short-term funding markets. European Central Bank, News Release, 12-Dec-07, http://www.ecb.int/press/pr/date/2007/html/pr071212.en.html.

⁴ Central Bank Measures to Address Elevated Pressures in Short-term Funding Markets. Bank of England, News Release, 12-Dec-07, http://www.bankofengland.co.uk/publications/news/2007/158.htm.

⁵ Bank of Canada Temporarily Expands List of Securities Eligible for Term PRA Transactions. Bank of Canada, News Release, 12-Dec-07, http://www.bankofcanada.ca/en/notices_fmd/2007/not121207.html.

⁶ Swiss National Bank provides US dollar funding. Swiss National Bank, News Release, 12-Dec-07, http://www.snb.ch/en/mmr/reference/pre_20071212/source/pre_20071212.en.pdf.