Fed Easing Liquidity in Funding Markets

[Ex-SD]

Tuesday March 11, 10:36 am ET
By Jeannine Aversa, AP Economics Writer
Fed Announces Further Steps to Ease Credit Crunch

WASHINGTON (AP) — The Federal Reserve on Tuesday ramped up efforts to provide more relief to squeezed financial institutions, a coordinated action with other central banks aimed at easing a global credit crises that threatens to push the U.S. economy into its first recession since 2001.

The Fed said it will make up to $200 billion in Treasury securities available to big Wall Street investment houses and banks. The new action is designed to ensure that there is an ample supply of Treasury securities. With strains in financial markets, demand has grown for Treasury securities, considered the safest investment in the world because they are backed by the U.S. government.

On Wall Street, the Fed’s action propelled stocks upward. The Dow Jones industrials jumped more than 250 points in morning trading.

The move comes as banks and other financial institutions face cash crunches.

“Pressures in some of these markets have recently increased again,” the Fed said in a statement. “We all continue to work together and will take appropriate steps to address those liquidity pressures.” The other banks involved are the Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank.

The Fed announced the creation of a new tool, called the Term Securities Lending Facility (TSLF), geared to provide primary dealers — big Wall Street investment firms and banks that trade directly with the Fed — with 28-day loans of Treasury securities, rather than overnight loans. They would pledge other securities — including federal agency residential-mortgage-backed securities, such as those of mortgage giants Fannnie Mae and Freddie Mac — as collateral for the loans of Treasury securities.

“This will not turn the economy around or fix all the problems in the markets but it should reduce the liquidity issue, at least for now,” said Ian Shepherdson, chief economist at High Frequency Economics. The odds of a deep, three-quarters of a percentage point cut in the Fed’s key interest rate next Tuesday have dropped sharply as the Fed’s new relief seemed to calm market turmoil, he said.

The loans would be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27.

The new lending initiative “is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally,” the Fed said.

The Fed since December has been making short-term loans of cash available to banks through a new auction facility. With the latest bank auction results announced Tuesday, the Fed has now made $210 billion available to squeezed banks in hopes it will help them to continue lending to individuals and companies. There were 82 bidders for the latest slice of $50 billion in short-term loans. The interest rate was 2.800 percent, the lowest rate for any of the seven auctions of this kind conducted so far.

Separately, the Fed also on Tuesday said it has authorized increases in existing programs called “swap lines” with the European Central Bank and the Swiss National Bank

“These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB respectively,” the Fed said, extending the term of these swap lines through Sept. 30.

Last week, the Fed announced that it would increase the amount of loans it plans to make available to banks this month to $100 billion. At the same time, it said it would make another $100 billion available to a broad range of financial players through a series of separate transactions.

The Fed has been working to pump billions of dollars into the banking system to aid an economy rocked by the subprime mortgage crisis and the severe tightening of credit.

A meltdown in the housing and credit markets has made banks and other financial institutions reluctant to lend to each other, causing a cash crunch. Financial companies wracked up multibillion-dollar losses as investments in mortgage-backed securities soured with the housing market’s bust. Problems first started in the market for subprime mortgages– those made to people with blemished credit histories. However, troubles have spread to other areas.

[cr]

Another bandaid on a broken leg.

How does this affect inflation and the value of the dollar?

[davelj]

This, in conjunction with another rate cut, will work for a couple of weeks. Then it’ll stop working because the problem isn’t liquidity; it’s solvency. These actions only minimally address the solvency issue (debt service is lower for some folks) and the effects will eventually wear off.

[North15]

This is of no help to home depreciation continuing.

[Arty]

Excellent, I guess the problem is not only somewhere between 40 billions to 160 billions as they claimed to be last year. So how big is it? I guess is about 2 trillion, am I right?

[Arty]

Excellent, I guess the problem is not only somewhere between 40 billions to 160 billions as they claimed to be last year. So how big is it? I guess is about 2 trillion, am I right?

[Arty]

Excellent, I guess the problem is not only somewhere between 40 billions to 160 billions as they claimed to be last year. So how big is it? I guess is about 2 trillion, am I right?

[Arty]

Excellent, I guess the problem is not only somewhere between 40 billions to 160 billions as they claimed to be last year. So how big is it? I guess is about 2 trillion, am I right?

[Arty]

Excellent, I guess the problem is not only somewhere between 40 billions to 160 billions as they claimed to be last year. So how big is it? I guess is about 2 trillion, am I right?

[Mean Reversion]

This is of no help to home depreciation continuing.

This move wasn’t designed for that.

It was designed help liquify the credit market and the banks.

[Deal Hunter]

The $200 Billion is in the form of T-bills, not central bank reserves or Bernanke’s retirement stash. It’s STILL a taxpayer bail-out. No better than taxation without representation.

[JWM in SD]

JWM in SD

Here is the key to this. What is the quality of the collateral that is being pledged for the loans? How long will the FED hold it in reality? THe danger here is monetization of debt by the FED at some point. We’ll see if Bernanke sticks to his guns or not.

[HereWeGo]

It’s a good move by the Fed, but unless the price of oil comes down, the “real” economy will still get smoked as the PPI outraces the CPI.

I can’t see how the Fed can cut again in March. The market expects them to cut, but they really should disappoint the market this time around.

[donaldduckmoore]

The price of oil and inflation are all due to lower fed fund rate. I think what the fed is trying to do is to quickly (if they can) stabilize the credit market and start to increase the fed fund rate in hope of stabilize the inflation.

One has to understand that the fed does not really have a lot of tools to maneuver the economy but we are facing two polarized problems – inflation and recession. No one can address both at the same time. I feel what they do is understandable and reasonable although I am not sure if it will work. From this, we also notice that the Fed realizes the problem is huge and they have to address this issue immediately with all of the tools they have. That is my thought.

[davelj]

The Fed has been engaged in back-to-back-to-back end of game hail marys. The passes were incomplete but because there were penalties on each play, they keep getting another shot at it. Eventually someone’s gotta catch the ball or the game is over. This can’t go on ad infinitum.

[DaCounselor]

Certainly there are problems with both liquidity AND solvency – not just one or the other. In fact, can there be much doubt that we are headed into a cul-de-sac where a liquidity trap awaits?

I may be wrong but I just can’t imagine that the Fed will fail to continue to offer additional hundreds of billions of dollars more in loans – against mostly junk collateral – moving forward. And what will be the total of worldwide offerings when all is said and done? Several trillion, I would guess.

As for the FFR, I just don’t believe the Fed is even thinking of doing a 180 and tightening right now. I think they are going to take it down to 2.0 and maybe lower before they are done easing, and we are looking at a very low FFR for the next several years.

[donaldduckmoore]

I feel sympathy to the Fed and Ben. What else can he do to fix this mess? Nothing. It was all generated by Greenspan and now Ben has to take care of. What a job.

[Enorah]

It was generated by those whose names we do not know.

[Enorah]

It was generated by those whose names we do not know.

[Enorah]

It was generated by those whose names we do not know.

[Enorah]

It was generated by those whose names we do not know.

[Enorah]

It was generated by those whose names we do not know.

[donaldduckmoore]

I feel sympathy to the Fed and Ben. What else can he do to fix this mess? Nothing. It was all generated by Greenspan and now Ben has to take care of. What a job.

[donaldduckmoore]

I feel sympathy to the Fed and Ben. What else can he do to fix this mess? Nothing. It was all generated by Greenspan and now Ben has to take care of. What a job.

[donaldduckmoore]

I feel sympathy to the Fed and Ben. What else can he do to fix this mess? Nothing. It was all generated by Greenspan and now Ben has to take care of. What a job.

[donaldduckmoore]

I feel sympathy to the Fed and Ben. What else can he do to fix this mess? Nothing. It was all generated by Greenspan and now Ben has to take care of. What a job.

[DaCounselor]

Certainly there are problems with both liquidity AND solvency – not just one or the other. In fact, can there be much doubt that we are headed into a cul-de-sac where a liquidity trap awaits?

I may be wrong but I just can’t imagine that the Fed will fail to continue to offer additional hundreds of billions of dollars more in loans – against mostly junk collateral – moving forward. And what will be the total of worldwide offerings when all is said and done? Several trillion, I would guess.

As for the FFR, I just don’t believe the Fed is even thinking of doing a 180 and tightening right now. I think they are going to take it down to 2.0 and maybe lower before they are done easing, and we are looking at a very low FFR for the next several years.

[DaCounselor]

Certainly there are problems with both liquidity AND solvency – not just one or the other. In fact, can there be much doubt that we are headed into a cul-de-sac where a liquidity trap awaits?

I may be wrong but I just can’t imagine that the Fed will fail to continue to offer additional hundreds of billions of dollars more in loans – against mostly junk collateral – moving forward. And what will be the total of worldwide offerings when all is said and done? Several trillion, I would guess.

As for the FFR, I just don’t believe the Fed is even thinking of doing a 180 and tightening right now. I think they are going to take it down to 2.0 and maybe lower before they are done easing, and we are looking at a very low FFR for the next several years.

[DaCounselor]

Certainly there are problems with both liquidity AND solvency – not just one or the other. In fact, can there be much doubt that we are headed into a cul-de-sac where a liquidity trap awaits?

I may be wrong but I just can’t imagine that the Fed will fail to continue to offer additional hundreds of billions of dollars more in loans – against mostly junk collateral – moving forward. And what will be the total of worldwide offerings when all is said and done? Several trillion, I would guess.

As for the FFR, I just don’t believe the Fed is even thinking of doing a 180 and tightening right now. I think they are going to take it down to 2.0 and maybe lower before they are done easing, and we are looking at a very low FFR for the next several years.

[DaCounselor]

Certainly there are problems with both liquidity AND solvency – not just one or the other. In fact, can there be much doubt that we are headed into a cul-de-sac where a liquidity trap awaits?

I may be wrong but I just can’t imagine that the Fed will fail to continue to offer additional hundreds of billions of dollars more in loans – against mostly junk collateral – moving forward. And what will be the total of worldwide offerings when all is said and done? Several trillion, I would guess.

As for the FFR, I just don’t believe the Fed is even thinking of doing a 180 and tightening right now. I think they are going to take it down to 2.0 and maybe lower before they are done easing, and we are looking at a very low FFR for the next several years.

[davelj]

The Fed has been engaged in back-to-back-to-back end of game hail marys. The passes were incomplete but because there were penalties on each play, they keep getting another shot at it. Eventually someone’s gotta catch the ball or the game is over. This can’t go on ad infinitum.

[davelj]

The Fed has been engaged in back-to-back-to-back end of game hail marys. The passes were incomplete but because there were penalties on each play, they keep getting another shot at it. Eventually someone’s gotta catch the ball or the game is over. This can’t go on ad infinitum.

[davelj]

The Fed has been engaged in back-to-back-to-back end of game hail marys. The passes were incomplete but because there were penalties on each play, they keep getting another shot at it. Eventually someone’s gotta catch the ball or the game is over. This can’t go on ad infinitum.

[davelj]

The Fed has been engaged in back-to-back-to-back end of game hail marys. The passes were incomplete but because there were penalties on each play, they keep getting another shot at it. Eventually someone’s gotta catch the ball or the game is over. This can’t go on ad infinitum.

[peterb]

Take a look at Mr. Toscano’s article titled,”What’s in store for 2008″. Located in the upper right-hand frame of this web sites home page. I have to agree with him. Monetary policy in the US has been to lower rates in times of economic slow down. Inflation takes a big back seat to economic growth. Greenspan brought the rate down to about 1% during the 2002 recession. The recession of 2002 is going to look like a picnic at the lake compared to what’s coming this year! You dont think the Fed’s going to lower rates again and again this year as the bad news keeps coming in? Hard assets that are in global demand will probably be the only things that rise in price.

[peterb]

Take a look at Mr. Toscano’s article titled,”What’s in store for 2008″. Located in the upper right-hand frame of this web sites home page. I have to agree with him. Monetary policy in the US has been to lower rates in times of economic slow down. Inflation takes a big back seat to economic growth. Greenspan brought the rate down to about 1% during the 2002 recession. The recession of 2002 is going to look like a picnic at the lake compared to what’s coming this year! You dont think the Fed’s going to lower rates again and again this year as the bad news keeps coming in? Hard assets that are in global demand will probably be the only things that rise in price.

[peterb]

Take a look at Mr. Toscano’s article titled,”What’s in store for 2008″. Located in the upper right-hand frame of this web sites home page. I have to agree with him. Monetary policy in the US has been to lower rates in times of economic slow down. Inflation takes a big back seat to economic growth. Greenspan brought the rate down to about 1% during the 2002 recession. The recession of 2002 is going to look like a picnic at the lake compared to what’s coming this year! You dont think the Fed’s going to lower rates again and again this year as the bad news keeps coming in? Hard assets that are in global demand will probably be the only things that rise in price.

[peterb]

Take a look at Mr. Toscano’s article titled,”What’s in store for 2008″. Located in the upper right-hand frame of this web sites home page. I have to agree with him. Monetary policy in the US has been to lower rates in times of economic slow down. Inflation takes a big back seat to economic growth. Greenspan brought the rate down to about 1% during the 2002 recession. The recession of 2002 is going to look like a picnic at the lake compared to what’s coming this year! You dont think the Fed’s going to lower rates again and again this year as the bad news keeps coming in? Hard assets that are in global demand will probably be the only things that rise in price.

[peterb]

Take a look at Mr. Toscano’s article titled,”What’s in store for 2008″. Located in the upper right-hand frame of this web sites home page. I have to agree with him. Monetary policy in the US has been to lower rates in times of economic slow down. Inflation takes a big back seat to economic growth. Greenspan brought the rate down to about 1% during the 2002 recession. The recession of 2002 is going to look like a picnic at the lake compared to what’s coming this year! You dont think the Fed’s going to lower rates again and again this year as the bad news keeps coming in? Hard assets that are in global demand will probably be the only things that rise in price.

[donaldduckmoore]

The price of oil and inflation are all due to lower fed fund rate. I think what the fed is trying to do is to quickly (if they can) stabilize the credit market and start to increase the fed fund rate in hope of stabilize the inflation.

One has to understand that the fed does not really have a lot of tools to maneuver the economy but we are facing two polarized problems – inflation and recession. No one can address both at the same time. I feel what they do is understandable and reasonable although I am not sure if it will work. From this, we also notice that the Fed realizes the problem is huge and they have to address this issue immediately with all of the tools they have. That is my thought.

[donaldduckmoore]

The price of oil and inflation are all due to lower fed fund rate. I think what the fed is trying to do is to quickly (if they can) stabilize the credit market and start to increase the fed fund rate in hope of stabilize the inflation.

One has to understand that the fed does not really have a lot of tools to maneuver the economy but we are facing two polarized problems – inflation and recession. No one can address both at the same time. I feel what they do is understandable and reasonable although I am not sure if it will work. From this, we also notice that the Fed realizes the problem is huge and they have to address this issue immediately with all of the tools they have. That is my thought.

[donaldduckmoore]

The price of oil and inflation are all due to lower fed fund rate. I think what the fed is trying to do is to quickly (if they can) stabilize the credit market and start to increase the fed fund rate in hope of stabilize the inflation.

One has to understand that the fed does not really have a lot of tools to maneuver the economy but we are facing two polarized problems – inflation and recession. No one can address both at the same time. I feel what they do is understandable and reasonable although I am not sure if it will work. From this, we also notice that the Fed realizes the problem is huge and they have to address this issue immediately with all of the tools they have. That is my thought.

[donaldduckmoore]

The price of oil and inflation are all due to lower fed fund rate. I think what the fed is trying to do is to quickly (if they can) stabilize the credit market and start to increase the fed fund rate in hope of stabilize the inflation.

One has to understand that the fed does not really have a lot of tools to maneuver the economy but we are facing two polarized problems – inflation and recession. No one can address both at the same time. I feel what they do is understandable and reasonable although I am not sure if it will work. From this, we also notice that the Fed realizes the problem is huge and they have to address this issue immediately with all of the tools they have. That is my thought.

[HereWeGo]

It’s a good move by the Fed, but unless the price of oil comes down, the “real” economy will still get smoked as the PPI outraces the CPI.

I can’t see how the Fed can cut again in March. The market expects them to cut, but they really should disappoint the market this time around.

[HereWeGo]

It’s a good move by the Fed, but unless the price of oil comes down, the “real” economy will still get smoked as the PPI outraces the CPI.

I can’t see how the Fed can cut again in March. The market expects them to cut, but they really should disappoint the market this time around.

[HereWeGo]

It’s a good move by the Fed, but unless the price of oil comes down, the “real” economy will still get smoked as the PPI outraces the CPI.

I can’t see how the Fed can cut again in March. The market expects them to cut, but they really should disappoint the market this time around.

[HereWeGo]

It’s a good move by the Fed, but unless the price of oil comes down, the “real” economy will still get smoked as the PPI outraces the CPI.

I can’t see how the Fed can cut again in March. The market expects them to cut, but they really should disappoint the market this time around.

[bubba99]

JWM,

Quality of collateral is exactly the real issue. Banks, Wall Street Firms et. al. will be able to take in their “crappy” assets, and turn them into cash. If these assets were worth their face value, the new LTCF would not be necessary.

The language I have seen indicates that for now the window will be limited to GSE mortgage paper, but when that fails, crappier assets will creep in – for a lot longer than 28 days.

[HereWeGo]

Penny for your Yen?

[HereWeGo]

Penny for your Yen?

[HereWeGo]

Penny for your Yen?

[HereWeGo]

Penny for your Yen?

[HereWeGo]

Penny for your Yen?

[bubba99]

JWM,

Quality of collateral is exactly the real issue. Banks, Wall Street Firms et. al. will be able to take in their “crappy” assets, and turn them into cash. If these assets were worth their face value, the new LTCF would not be necessary.

The language I have seen indicates that for now the window will be limited to GSE mortgage paper, but when that fails, crappier assets will creep in – for a lot longer than 28 days.

[bubba99]

JWM,

Quality of collateral is exactly the real issue. Banks, Wall Street Firms et. al. will be able to take in their “crappy” assets, and turn them into cash. If these assets were worth their face value, the new LTCF would not be necessary.

The language I have seen indicates that for now the window will be limited to GSE mortgage paper, but when that fails, crappier assets will creep in – for a lot longer than 28 days.

[bubba99]

JWM,

Quality of collateral is exactly the real issue. Banks, Wall Street Firms et. al. will be able to take in their “crappy” assets, and turn them into cash. If these assets were worth their face value, the new LTCF would not be necessary.

The language I have seen indicates that for now the window will be limited to GSE mortgage paper, but when that fails, crappier assets will creep in – for a lot longer than 28 days.

[bubba99]

JWM,

Quality of collateral is exactly the real issue. Banks, Wall Street Firms et. al. will be able to take in their “crappy” assets, and turn them into cash. If these assets were worth their face value, the new LTCF would not be necessary.

The language I have seen indicates that for now the window will be limited to GSE mortgage paper, but when that fails, crappier assets will creep in – for a lot longer than 28 days.

[JWM in SD]

JWM in SD

Here is the key to this. What is the quality of the collateral that is being pledged for the loans? How long will the FED hold it in reality? THe danger here is monetization of debt by the FED at some point. We’ll see if Bernanke sticks to his guns or not.

[JWM in SD]

JWM in SD

Here is the key to this. What is the quality of the collateral that is being pledged for the loans? How long will the FED hold it in reality? THe danger here is monetization of debt by the FED at some point. We’ll see if Bernanke sticks to his guns or not.

[JWM in SD]

JWM in SD

Here is the key to this. What is the quality of the collateral that is being pledged for the loans? How long will the FED hold it in reality? THe danger here is monetization of debt by the FED at some point. We’ll see if Bernanke sticks to his guns or not.

[JWM in SD]

JWM in SD

Here is the key to this. What is the quality of the collateral that is being pledged for the loans? How long will the FED hold it in reality? THe danger here is monetization of debt by the FED at some point. We’ll see if Bernanke sticks to his guns or not.

[Deal Hunter]

The $200 Billion is in the form of T-bills, not central bank reserves or Bernanke’s retirement stash. It’s STILL a taxpayer bail-out. No better than taxation without representation.

[Deal Hunter]

The $200 Billion is in the form of T-bills, not central bank reserves or Bernanke’s retirement stash. It’s STILL a taxpayer bail-out. No better than taxation without representation.

[Deal Hunter]

The $200 Billion is in the form of T-bills, not central bank reserves or Bernanke’s retirement stash. It’s STILL a taxpayer bail-out. No better than taxation without representation.

[Deal Hunter]

The $200 Billion is in the form of T-bills, not central bank reserves or Bernanke’s retirement stash. It’s STILL a taxpayer bail-out. No better than taxation without representation.

[Mean Reversion]

This is of no help to home depreciation continuing.

This move wasn’t designed for that.

It was designed help liquify the credit market and the banks.

[Mean Reversion]

This is of no help to home depreciation continuing.

This move wasn’t designed for that.

It was designed help liquify the credit market and the banks.

[Mean Reversion]

This is of no help to home depreciation continuing.

This move wasn’t designed for that.

It was designed help liquify the credit market and the banks.

[Mean Reversion]

This is of no help to home depreciation continuing.

This move wasn’t designed for that.

It was designed help liquify the credit market and the banks.

[North15]

This is of no help to home depreciation continuing.

[North15]

This is of no help to home depreciation continuing.

[North15]

This is of no help to home depreciation continuing.

[North15]

This is of no help to home depreciation continuing.

[patientlywaiting]

I agree, davelj, it’s solvency.

[patientlywaiting]

I agree, davelj, it’s solvency.

[patientlywaiting]

I agree, davelj, it’s solvency.

[patientlywaiting]

I agree, davelj, it’s solvency.

[patientlywaiting]

I agree, davelj, it’s solvency.

[davelj]

This, in conjunction with another rate cut, will work for a couple of weeks. Then it’ll stop working because the problem isn’t liquidity; it’s solvency. These actions only minimally address the solvency issue (debt service is lower for some folks) and the effects will eventually wear off.

[davelj]

This, in conjunction with another rate cut, will work for a couple of weeks. Then it’ll stop working because the problem isn’t liquidity; it’s solvency. These actions only minimally address the solvency issue (debt service is lower for some folks) and the effects will eventually wear off.

[davelj]

This, in conjunction with another rate cut, will work for a couple of weeks. Then it’ll stop working because the problem isn’t liquidity; it’s solvency. These actions only minimally address the solvency issue (debt service is lower for some folks) and the effects will eventually wear off.

[davelj]

This, in conjunction with another rate cut, will work for a couple of weeks. Then it’ll stop working because the problem isn’t liquidity; it’s solvency. These actions only minimally address the solvency issue (debt service is lower for some folks) and the effects will eventually wear off.

[cr]

Another bandaid on a broken leg.

How does this affect inflation and the value of the dollar?

[cr]

Another bandaid on a broken leg.

How does this affect inflation and the value of the dollar?

[cr]

Another bandaid on a broken leg.

How does this affect inflation and the value of the dollar?

[cr]

Another bandaid on a broken leg.

How does this affect inflation and the value of the dollar?

[Author]

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