String Theory

The common thread in many aggressive rate cutting periods is the suggestion that regulators are “pushing on a piece of string”, meaning lower rates only matter if banks are willing to lend. This is true today, even with global central banks standing united against the evils of contagion and chaos in credit markets. Stock markets looked as though they were getting the hint early on, with Dow, S&P and Nasdaq futures all rising more than 1 percent.

But with a lot of work to do above and beyond rate cuts, capitulating investors may yet keep selling pressure high, particularly as a ban on short selling ends, just before midnight. Having heard nothing from other planets in the solar system, this morning’s coordinated response is pretty clearly the last line of defense.

The latest on the bank merger front, which seems to be eerily at the center of the vortex is the mechanism by which high liquidity and low rates get to the people who need it, the banking system. The Wall Street Journal reports that Citigroup is looking for partners in its contested bid for Wachovia. The gloves come off again tomorrow after a three-day legal hiatus that has kept Wells Fargo and Citi lawyers in the pen while cooler heads try to prevail. Will the global rate-cutting moves be a game changer in the bank consolidation? Dunno. How long is a piece of string?

Deals of the deals:

* Commonwealth Bank of Australia has agreed to buy British bank HBOS’s Australian unit BankWest for A$2.1 billion ($1.5 billion), below book value, to boost its market share in fast-growing Western Australia, the bank said.

* Tata Consultancy Services, India’s top software services exporter, said it would acquire Citigroup’s back office unit in India for about $505 million in cash.