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Fed says it was unaware of French bank's losses
The Federal Reserve, when it decided on an emergency interest rate cut this week, was unaware of a scandal involving a rogue trader that led to about $7 billion in losses at France's Societe Generale, a Fed official said.
- Reuters
- Published: 00:19 January 26, 2008
Washington: The Federal Reserve, when it decided on an emergency interest rate cut this week, was unaware of a scandal involving a rogue trader that led to about $7 billion in losses at France's Societe Generale, a Fed official said.
Still, the heavy losses at SocGen, France's second-biggest bank, dealt a blow to the Fed's credibility in the eyes of some financial market participants, who wondered if policy-makers blundered in making the biggest US interest rate cut in a generation on Tuesday.
"Their panicky rate cut was not to ensure the smooth functioning of the markets, but rather, to guarantee prices," said Barry Ritholtz, a market analyst at Ritholtz Research & Analytics.
"We quickly learn what sheer folly and utter irresponsibility it is for the Fed to use its limited ammunition to intervene in equity prices," Ritholtz wrote on his blog, The Big Picture.
The US central bank on Tuesday slashed overnight borrowing costs by three-quarters of a percentage point, to 3.5 per cent.
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