Fed Acts to Stem Credit Turmoil

Discussion in 'Economics' started by Businessman, Aug 10, 2007.

  1. Fed Acts to Stem Credit Turmoil
    Friday August 10, 9:47 am ET
    Federal Reserve Says It Is Providing Liquidity to Stem Credit Turmoil

    WASHINGTON (AP) -- The Federal Reserve, trying to calm financial turmoil on Wall Street, announced Friday that it will provide liquidity to help bolster U.S. financial markets.
    The Fed, in a short statement, said it will provide "reserves as necessary" to help the markets safely make their way. The central bank did not provide details but said it would do all it can to "facilitate the orderly functioning of financial markets."

    The Fed's action comes one day after a financial panic about a credit crunch swept through Europe. That prompted the Europeans to pump $130 billion into their financial system. The Fed moved Thursday to add an extra $24 billion in temporary reserves to the U.S. banking system.

    The Fed chose not to cut a key interest rate, called the federal funds rate, to address the problem. That interest rate still stands at 5.25 percent. The funds rate is interest banks charge each other on overnight loans.

    Instead, the Fed is seeking to provide reassurance to investors that the central bank will pump extra money into the U.S. financial system to make sure the credit crunch doesn't worsen.

    "In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets," the Fed said.

    It told banks that the Fed's discount window -- where banks can turn in an emergency for short-term loans -- is available as a source of funding.

    After the Sept. 11, 2001, terror attacks, the Fed used the discount window to extend billions of dollars worth of emergency loans to banks to keep the financial system functioning.
  2. The Fed saying "we won't tell you what we're going to do, but we'll take care of everything" -- what in the heck does that mean, LOL.

    "We're from the government, and we're here to help." LOL. "So you investors just go ahead and buy stocks, all is good" Yeah, right.

    I've seen this nonsense before, I think it was in 1987.

    Neither a bull nor a bear be, trade them don't marry them

  3. I think the Fed knows it can't cut rates, and that this problem needs to occur in order to righten itself. At the same time, they need to staive off a disaster as well so they're doing day to day injections of liquidity.

    Smart move, overall. I don't think the Fed is saying "buy" anything at this point. All they're saying is "we'll help keep the system functioning." They're making sure we don't lose faith in the system, while at the same time recognizing a change has to come about.

    As long as they don't cut rates, we shouldn't draw this out longer than it has to be.
  4. They should have cut rates Tuesday. Instead they retained idiotic language about an inflation bias. We are now seeing a worldwide vote of no confidence in the Fed and Bernanke, a vote that is richly deserved.

    Someone needs to wake Bernanke up and tell him it's not the 1950's. Markets are interlinked and move at digital speed. Illegal immigrants walking away from no doc loans in California quickly morphs into a crisis for european banks. The Fed can't move at the leisurely academic pace Bernanke seems accustomed to. They need to do something dramatic and do it quickly.
  5. Sorry, my friend. I agree with a lot of what you say here on ET, but this isn't one of those posts where I can agree.

    Cutting rates is a wrong move. Cheap money put us here and we cannot resort to that just because of this hiccup. We need to stay the course. Injecting liquidity on a one-off basis like this is smart. Cutting rates will just encourage stupidity and allow this cataclysm to continue waiting in the background.
  6. The illegal immigrants? How about every guy who wants to flip a house, every couple with dreams faking their incomes, this is hardly limited to our immigration concerns.

    It's a tough call between rate cuts and diluting the market by printing more money, what ever happened to free market capitalism.

  7. Arnie


    The problem isn't rates. Its's that no one knows how deep the sub prime mess is and what the real worth of CDO's is. Cutting rates won't change that. This is an isolated case that is spiling over to other sectors......people are selling the assets they CAN sell, not the ones they WANT to sell. The Fed is doing exactly what it should.......provide liquidity.

    These lenders and investors need to take it up the ***.

    4 or 5 years ago I was talking with another appraiser and we both wondered "Who the hell is buying this crap" Guess everyone was.
  8. Oh, so now our big bad conservative Republican and resident ET Bush supporter from the midwest has now become a Socialist???

  9. Agreed.
  10. Is this great or what?

    The fed injects liquidity to the tune of 40B in the last two days...collateralized by mortgage backed securities...I wonder?

    Did they just loan to BSC a huge sum, (tp presumably stabilize the stock market, among others), backed by paper that BSC only last week absconded for virtually nothing from the very investors that BSC put them into in the first place.

    Highway robbery, at it's finest. Or as it's most well-known as, business as usual.
    #10     Aug 10, 2007