Much more likely is that the authorities view the current turbulence as a healthy re-imposition of market discipline, a classic balancing of fat years with lean. At the systemic level, it is a skinned knee and not a broken back. The likelihood of a Fed target rate cut remains remote, in my opinion, although I recognize that this has once again become a minority view.

My opinion is not based on any specific information regarding the scale and distribution of solvency or liquidity problems at any bank, firm or fund. Instead, it is founded on a perception of the healthy global economic context and a sort of pattern analysis recognition of the harmonics of narrowly focused liquidity problems.

The current turmoil is hardly the first such market anxiety attack of this nature; you need only a decade or so of experience to have gone through a cluster of them with similar DNA, from East Asia and Russia through the tech-telco meltdown to that passing little panic over Chinese equities six months ago.

That DNA unwinds something like this: A bank or fund or sector gets overextended (a rumor will do here; real facts are often superfluous). There is limited information about the scale of the problem. Discretion gets the better of valor as investors flee from the perceived exposure rather than -- as happens so much more frequently -- rushing to embrace a mispricing and a profit opportunity.

Shock waves radiate out from the center of commotion, giving the impression of a spreading crisis. Those who are distressed or even just wrong-footed by the problem cry out for relief, citing the grave threat to civilization and, incidentally, to their portfolios.

Markets are said to express two emotions, fear and greed. There is not much doubt about which is in the ascendancy lately. Newspapers and blogs are full of condemnations of investment banks that heartlessly peddled toxic merchandise to widows and orphans, or hedge funds that irresponsibly piled leverage on leverage to extract enormous gains from arcane trading strategies in obscure securities. Not many weeks earlier, when greed was the emotion du jour, these same actors were described as villains for the opposite offense of making too much money.

They always take 'em to excess.

The Fed faces a problem of moral hazard here, not one of economic or financial system stability. Should it bail out the market sectors that are now in trouble, the same ones where "obscene" gains were so recently booked, or should it allow market nature to take its course, re-establishing prudence and a more sustainable allocation of capital? (Because I pose the question in that way, I allow only one way to answer it.)

The background context is one of abundant liquidity; global monetary policies are not tight. The problem is focused in credit, beginning in subprime mortgages and radiating out into other speculative grade loans and securities.

The economic context is robust if not booming: John Chambers, Cisco (CSCO - commentary - Cramer's Take) CEO, last week described it as the strongest global economy of his lifetime (mine too, and I'm older than he is). The U.S. dollar is as weak as it has been in 15 years, supported primarily by foreign officials rather than private-sector confidence, and this is hardly a prescription for Fed ease. Foreign officials have built up liquid balances far in excess of immediate precautionary needs.

In fact, those official reserves have become so great as perhaps to constitute the next new big thing when this credit spasm passes. We may have to worry about how to handle the situation when our economy continues to need other people's savings in order to function, but those other people already own so many of our IOUs that they prefer to use them to buy up our patrimony. The Japanese once owned Pebble Beach. What will China bid for Yellowstone?

I see a solution to both problems. House 4 Sale: 3 br, 2 bth, CAC -- needs feng shui TLC.

Houses Are "Non-Tradeables," but Make Us an Offer

Hardly a Cry for Fed Ease

Your Patrimony or Your Purse!

Source: Bank of International Settlements, retrieved Aug. 9 from http://www.bis.org/publ/arpdf/ar2007e3.pdf