WASHINGTON — Last Friday's sudden 50bps cut in the discount rate generated lots of prognostication and predictions in the economic community and in the CU sphere. But will the cut unfreeze the credit market and soothe the run to the safety of U.S. Treasuries, which fell yesterday more than they did after the attack on the World Trade Center in 2001, with the yield on the three-month bill at 2.55%.

Nouriel Roubini, founder and principal of New York's RGE Monitor doesn't think so, writing "it will not be successful as credit problems that are creating the market turmoil cannot be solved by liquidity injections. Why should banks aggressively use the discount window to reliquify the Asset Backed Commercial Paper (ABCP) and other constipated credit markets when the exposure of these markets to toxic waste subprime, subslime and other uncertain value mortgage securities (RMBS, CDOs) is potentially widespread and risky." He says the Fed will cut again before the next full FOMC meeting and cut again when it meets in September.

CNBS's Brian Hague noted that investment banker Calyon, a subsidiary of France's Credit Agricole, estimated that the (subprime) mess will ultimately carry a $150 billion price tag in terms of investor losses. They forecast foreclosures on 20% of the $1.3 trillion of subprime loans outstanding, and assume investors will recoup half their losses. "That last prediction may be optimistic. As tighter lending standards migrate not only up the credit curve, but to other consumer loan categories, losses will spread. Already, widening spreads are hurting the Commercial Mortgage Backed Securities (CMBS) and residential Mortgage Backed Securities markets. More than 70 lenders and a half-dozen hedge funds have gone belly-up thus far, and we'll likely see some builders go under as well," Hague said.