Can someone explain to me what the FED did this week?

[kewp]

Patientrenter,

Thanks for the clarification, I’m stuck in the woods in SJ at the moment visiting family and slumming on dial-up. So I haven’t been able to get the details that I would like.

So I’ll have to admit I don’t understand what the banks are getting out of this, other than a stay of execution, so to speak.

[Fearful]

The Fed’s actions do not have a permanent effect on the money supply – that is, they result in a blip up which could be sustained, but we hope won’t be, because (as I understand) the supply increase was about 7%.

The faster that money moves around, the more efficient the system. The downside of fast moving money is that the system is sensitive to abrupt throttling, such as happens when a bunch of mortgagees stop paying their monthly bills. In a highly interconnected system – that is, with securitized mortgages – the effects of that throttling are felt far beyond the normal recipient of the mortgage payments. Stopping the money moving in one point means it has to stop moving in a bunch of other, related, areas. This is a liquidity crisis: It is fine when money stops moving slowly, but bad when it suddenly stops moving: You see things like jumbo mortgages at 8%, and funding for leveraged deals simply not being made available.

The Fed stepped in to flood the system with money in hopes that over the intervening days money can be pulled in from other areas to alleviate the crisis. This is the “stay of execution” you refer to. If the increase in the money supply is short-lived, the inflationary effect will be minimal.

The performance of the credit markets on Monday will tell us how effective the money bombing was.

The breadth of this issue illustrates just how bad the housing bubble actually is.

[Fearful]

The Fed’s actions do not have a permanent effect on the money supply – that is, they result in a blip up which could be sustained, but we hope won’t be, because (as I understand) the supply increase was about 7%.

The faster that money moves around, the more efficient the system. The downside of fast moving money is that the system is sensitive to abrupt throttling, such as happens when a bunch of mortgagees stop paying their monthly bills. In a highly interconnected system – that is, with securitized mortgages – the effects of that throttling are felt far beyond the normal recipient of the mortgage payments. Stopping the money moving in one point means it has to stop moving in a bunch of other, related, areas. This is a liquidity crisis: It is fine when money stops moving slowly, but bad when it suddenly stops moving: You see things like jumbo mortgages at 8%, and funding for leveraged deals simply not being made available.

The Fed stepped in to flood the system with money in hopes that over the intervening days money can be pulled in from other areas to alleviate the crisis. This is the “stay of execution” you refer to. If the increase in the money supply is short-lived, the inflationary effect will be minimal.

The performance of the credit markets on Monday will tell us how effective the money bombing was.

The breadth of this issue illustrates just how bad the housing bubble actually is.

[Fearful]

The Fed’s actions do not have a permanent effect on the money supply – that is, they result in a blip up which could be sustained, but we hope won’t be, because (as I understand) the supply increase was about 7%.

The faster that money moves around, the more efficient the system. The downside of fast moving money is that the system is sensitive to abrupt throttling, such as happens when a bunch of mortgagees stop paying their monthly bills. In a highly interconnected system – that is, with securitized mortgages – the effects of that throttling are felt far beyond the normal recipient of the mortgage payments. Stopping the money moving in one point means it has to stop moving in a bunch of other, related, areas. This is a liquidity crisis: It is fine when money stops moving slowly, but bad when it suddenly stops moving: You see things like jumbo mortgages at 8%, and funding for leveraged deals simply not being made available.

The Fed stepped in to flood the system with money in hopes that over the intervening days money can be pulled in from other areas to alleviate the crisis. This is the “stay of execution” you refer to. If the increase in the money supply is short-lived, the inflationary effect will be minimal.

The performance of the credit markets on Monday will tell us how effective the money bombing was.

The breadth of this issue illustrates just how bad the housing bubble actually is.

[what_a_disasta]

http://www.thestreet.com/s/bank-injections-lift-stocks/markets/marketstory/10373886.html?puc=_googlen?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA

Meanwhile, the U.S. Federal Reserve said it was adding $2 billion in liquidity by way of a one-day repurchase of Treasuries and other securities.

“The Fed is buying securities from the banks in cash, taking them off the banks’ hands,” said Paul Mendelsohn, chief investment officer with Windham Financial. “It looks like $400 billion has been put into banks worldwide. That’s a lot of money. It’s hard to imagine what this market would be like without these injections. It would be an ugly picture.”

So much for the free market!

[what_a_disasta]

http://www.thestreet.com/s/bank-injections-lift-stocks/markets/marketstory/10373886.html?puc=_googlen?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA

Meanwhile, the U.S. Federal Reserve said it was adding $2 billion in liquidity by way of a one-day repurchase of Treasuries and other securities.

“The Fed is buying securities from the banks in cash, taking them off the banks’ hands,” said Paul Mendelsohn, chief investment officer with Windham Financial. “It looks like $400 billion has been put into banks worldwide. That’s a lot of money. It’s hard to imagine what this market would be like without these injections. It would be an ugly picture.”

So much for the free market!

[what_a_disasta]

http://www.thestreet.com/s/bank-injections-lift-stocks/markets/marketstory/10373886.html?puc=_googlen?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA

Meanwhile, the U.S. Federal Reserve said it was adding $2 billion in liquidity by way of a one-day repurchase of Treasuries and other securities.

“The Fed is buying securities from the banks in cash, taking them off the banks’ hands,” said Paul Mendelsohn, chief investment officer with Windham Financial. “It looks like $400 billion has been put into banks worldwide. That’s a lot of money. It’s hard to imagine what this market would be like without these injections. It would be an ugly picture.”

So much for the free market!

[CAwireman]

What will the short term effect be on the residential realestate market?

And, what about mid term (1 -2 years) and long term (2 – 5 years)

Anyone willing to speculate?

Is this one of the things that Rich mentioned could stop the downward RE trend?

Thanks all,

HiggyBaby

[CAwireman]

What will the short term effect be on the residential realestate market?

And, what about mid term (1 -2 years) and long term (2 – 5 years)

Anyone willing to speculate?

Is this one of the things that Rich mentioned could stop the downward RE trend?

Thanks all,

HiggyBaby

[CAwireman]

What will the short term effect be on the residential realestate market?

And, what about mid term (1 -2 years) and long term (2 – 5 years)

Anyone willing to speculate?

Is this one of the things that Rich mentioned could stop the downward RE trend?

Thanks all,

HiggyBaby

[Ex-SD]

From the L.A. Land blog in the L.A. times, today…….8/13/07.

Update on Fed’s intervention

When we reported last week on the Fed’s attempts to pump liquidity into the financial markets, we quoted two news organizations reporting that the Fed had purchased mortgage-backed securities, or MBS’s.

In the interest of setting the record straight, we note that Calculated Risk — an excellent blog on economic issues, btw — reports that, technically, that’s not exactly what the Fed did: …”the Fed didn’t buy ‘billions of dollars worth of crumbling bonds’. The MBS is just put up as collateral, and unless the banks go under in 3 calendar days, they will pay the loan back with 3 days of 5.25% interest. No big deal.”

More: “Technically the legal ownership of the collateral apparently does change hands, so saying the Fed is ‘buying’ is not completely inaccurate – just misleading.”

And an update: http://www.cnbc.com/id/20246769

[Ex-SD]

From the L.A. Land blog in the L.A. times, today…….8/13/07.

Update on Fed’s intervention

When we reported last week on the Fed’s attempts to pump liquidity into the financial markets, we quoted two news organizations reporting that the Fed had purchased mortgage-backed securities, or MBS’s.

In the interest of setting the record straight, we note that Calculated Risk — an excellent blog on economic issues, btw — reports that, technically, that’s not exactly what the Fed did: …”the Fed didn’t buy ‘billions of dollars worth of crumbling bonds’. The MBS is just put up as collateral, and unless the banks go under in 3 calendar days, they will pay the loan back with 3 days of 5.25% interest. No big deal.”

More: “Technically the legal ownership of the collateral apparently does change hands, so saying the Fed is ‘buying’ is not completely inaccurate – just misleading.”

And an update: http://www.cnbc.com/id/20246769

[Ex-SD]

From the L.A. Land blog in the L.A. times, today…….8/13/07.

Update on Fed’s intervention

When we reported last week on the Fed’s attempts to pump liquidity into the financial markets, we quoted two news organizations reporting that the Fed had purchased mortgage-backed securities, or MBS’s.

In the interest of setting the record straight, we note that Calculated Risk — an excellent blog on economic issues, btw — reports that, technically, that’s not exactly what the Fed did: …”the Fed didn’t buy ‘billions of dollars worth of crumbling bonds’. The MBS is just put up as collateral, and unless the banks go under in 3 calendar days, they will pay the loan back with 3 days of 5.25% interest. No big deal.”

More: “Technically the legal ownership of the collateral apparently does change hands, so saying the Fed is ‘buying’ is not completely inaccurate – just misleading.”

And an update: http://www.cnbc.com/id/20246769

[CAwireman]

Thanks Ex-SD

I’ll read the article at the link.

Much appreciated.

HiggyBaby

[CAwireman]

Thanks Ex-SD

I’ll read the article at the link.

Much appreciated.

HiggyBaby

[Author]

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