Fed Extends Emergency Lending Programs

Discussion in 'Economics' started by The Kin, Jul 30, 2008.

  1. Fed Extends Emergency Lending Programs Until Jan. 30 (Update1)

    By Scott Lanman

    July 30 (Bloomberg) -- The Federal Reserve extended two emergency lending programs to Wall Street firms until Jan. 30, 2009, ``in light of continued fragile circumstances in financial markets,'' the central bank said today.

    The Primary Dealer Credit Facility for direct loans to securities firms and the Term Securities Lending Facility for loans of Treasuries, both begun in March, ``would be withdrawn should the board determine that conditions in financial markets are no longer unusual and exigent,'' the Fed said in a statement.

    Chairman Ben S. Bernanke flagged the likelihood of the extension in a July 8 speech, saying the Fed is ``strongly committed'' to financial stability. The programs, representing a provision of Fed credit to nonbanks unprecedented since the Great Depression, were introduced to counter financial-market turmoil amid the near-collapse of Bear Stearns Cos.

    The Fed will start auctions of options of as much as $50 billion in the TSLF on top of the $200 billion program, which loans Treasuries to securities firms in exchange for asset-backed securities and other collateral.

    The central bank also will start selling 84-day loans to commercial banks under the Term Auction Facility beginning next month, in addition to the sales of 28-day loans that have occurred since the program began in December. The biweekly sales will alternate between auctions of $75 billion in 28-day loans, and $25 billion in 84-day loans.

    Lend to Nonbanks

    The Fed started the lending programs for investment banks under its authority to lend to nonbanks in ``unusual and exigent circumstances.'' Officials said at the time the Primary Dealer Credit Facility, which provides direct loans, would last for ``at least'' six months. The central bank had not previously given an end date for the TSLF.

    The PDCF has shown a zero balance for four straight weeks. The loans, once as high as $37 billion, fell to zero after the Fed took on a portfolio of assets in June as part of a March agreement to ease Bear Stearns's acquisition by JPMorgan Chase & Co.

    New York Fed President Timothy Geithner said last week that the PDCF and TSLF are still needed, citing ``exceptional'' tensions in financial markets. ``I don't think you can really judge the value today to the firms themselves, or the people that fund them, from looking at use day-by-day,'' Geithner told House lawmakers at a hearing in Washington.

    The Fed provides loans to commercial banks of as long as 90 days through the traditional discount window, which carries an interest rate of 2.25 percent, a quarter-point higher than the Fed's benchmark rate. Lending rose to a record daily average of $16.4 billion in the week ended July 24.

    In a related move, the European Central Bank and Swiss National Bank are also extending their operations to include auctions of 84-day funds, the Fed said in a press release.

    To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net

    Last Updated: July 30, 2008 09:10 EDT


    When did all this happen? 84 day loans to investment banks? $50 billion increase in term facility lending? Did all this happen today?
  2. Just another step in the "fool the public scam"... where they extend loans in perpetuity, never to be repaid... monetizing the bad debts right under our noses.
  3. The academic is doing this before fannie and freddie report their bombs next month.

    The one who is taking the heat for this mess did warn back in 2005 but the republican congress was too busy building bridges to nowhere and in effect the bridge to insolvency.

    Greenspan Calls for Curbs on Fannie Mae, Freddie Mac Growth

    In testimony to the Senate Banking Committee today, Greenspan said the size of Fannie Mae's and Freddie Mac's portfolios, a combined $1.55 trillion, poses a risk to the global financial system. It would be difficult, if not impossible, to bail out the lenders, known as government- sponsored enterprises, should one get into financial trouble.

    ``If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis,'' Greenspan said in the text of his testimony. ``We put at risk our ability to preserve safe and sound financial markets in the United States, a key ingredient of support for homeownership.''

    The Senate is considering a similar bill, and ``we do intend to move legislation this year,'' said Andrew Gray, a spokesman for the Banking Committee. Legislation creating a stricter regulator stalled in Congress in 2003 and 2004, partly because of opposition from the companies.