Liquidity Fears Evaporate

"We have a healthy economy ... a strong global economy ... liquidity around the world," were some of Paulson's sound bites. But they were intermingled with his austere comments that the credit markets had "a wake up call," and that the large leveraged buyout deals being financed with loans that had no covenants, or protections attached, were the "sign of a lack of discipline."

His interview was aired an hour or so after President Bush said that tax revenues should not be used to bail out mortgage lenders. Bush was referring to expectations or hopes that the caps on Fannie Mae(FNM) and Freddie Mac's(FRE) portfolios would be lifted, allowing the government-sponsored entities to buy up struggling mortgage products.

Optimism about Fannie, Freddie or others out there to buy up the rotten apples in the credit markets persisted, pushing the GSE's shares up 3.6% and 1.6%, respectively. Many financial stocks continued to rally as well, with Bear Stearns gaining another 3.6%, but the Paulson and Bush headlines had the markets swooning midday, and particularly the financials.

The now commonplace mantra seems appropriate once again: the only thing to count on in this market is volatility -- a daytrader's paradise and a horror show for the rest of us.

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