For those of you trying to make sense of this week’s financial market turmoil, Morgan Stanley’s Vincent Reinhart has an analogy for you.
On September 6, 1970, two hijackers attempted to take control of El Al flight 216 from Amsterdam to NY not long after takeoff. The pilot knew that all the passengers and crew were strapped in, except for the hostage- takers moving up and down the aisles, and that there were two armed air marshals on board. He put his Boeing 707 in a deep dive followed by an equally sharp climb—a “negative-G pushover.” This toppled the hijackers back, first to the ceiling and then to the floor of the plane, stunning them. The air marshals took over from there.
Fed Chairman Ben Bernanke attempted the same manoeuvre on Wednesday with the hurtling piece of machinery known as the global financial market. He may not have been as deft in execution, the machinery is not as structurally sound as a Boeing 707, and far fewer passengers were strapped in. But the tension of the moment is as compelling for investors this week as for passengers on that flight, as was the confusion among both about the pilot’s plan.
On Wednesday, Bernanke said that the Fed could begin to taper, or scale back, its stimulative quantitative easing plan. A number of experts warned ahead of time that these types of comments would bring volatility to the financial markets.
But others deemed it a calculated risk, as it was probably better for the Fed to give the markets as much of a heads up before it would actually execute such tapering.
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