Market Scan
Fed Pumps Up Liquidity
Evelyn M. Rusli, 12.12.07, 10:05 AM ET
Less than 24 hours after the Federal Reserve disappointed Wall Street with a quarter-point cut, the central bankers announced a new plan to shore up liquidity in the financial markets. On Wednesday morning, the Fed said it was teaming up with other central banks to initiate measures that will hopefully quell the credit crisis.
One of the new initiatives is the Term Auction Facility program, which will auction off more than $40 billion in term funds to financial institutions. In the Fed’s words, the facility will “promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.”
The program would widen the participation in financing beyond the big banks and brokers that are primary Fed dealers, allowing most U.S. banks to interact directly with the central bank. Traditionally, the primary dealers buy and sell short-term securites to and from the Federal Reserve Bank of New York, which can add or drain funds from the money supply through these transactions.
This multi-regional campaign also includes the Bank of Canada, the Bank of England, the European Central Bank, and the Swiss National Bank.
The facility will consist of four auctions, with the first auction, set for $20 billion, scheduled to begin on Monday and end on Thursday of next week. The second auction, which will also be $20 billion, will commence Dec. 20, with a settlement on Dec. 27. This auction will dole out 35-day loans. Finally, the third and fourth auctions will be in mid-to-late January, but the amount and duration of these term funds will be decided in January.
While the Fed did not comment what it might do after January, it left the door open for future auctions:
“The Federal Reserve may conduct additional auctions in subsequent months, depending in part on evolving market conditions.” Indeed, the Term Auction Facility program, or similar measures, may become more common in the future. “Experience gained under this temporary program will be helpful in assessing the potential usefulness of augmenting the Federal Reserve’s current-monetary policy tools--open-market operations and the primary credit facility--with a permanent facility for auctioning term discount window credit,” the Fed said.
Unlike the current discount window, which has been dogged by the stigma that only troubled institutions need apply, the Fed hopes that many will participate in the auctions.
In addition, the auction loan rates will be far more favorable than the rates on “discount window” loans. The current discount rate of 4.75% is half a percentage point higher than the interbank federal funds rate of 4.25%.
According to the Fed, all firms “that are judged to be in generally sound financial condition by their local Reserve Bank and that are eligible to borrow under the primary credit discount window program” are eligible.
On Wednesday, the Fed also announced it has arranged temporary reciprocal currency swap lines with with the European Central Bank and the Swiss National Bank. "These arrangements will provide dollars in amounts of up to $20 billion and $4 billion to the ECB and the SNB, respectively, for use in their jurisdictions," the Fed said. The lines are approved for six months.
http://www.forbes.com/2007/12/12/fed-taf-reserve-markets-equity-cx_er_1212markets08_print.html
so bernanke is going to flood lenders with cheap cash to prevent the downward spiral
Im telling yall they think people have too much power and freedom - they are going to tank the economy then buy up everything
