So, just how significant is a 50bps cut in the discount rate, really? This week the Federal Reserve Board was lending a daily average of $36.3 billion in open market repos at the Fed Funds rate, versus $11 million in primary credit at the discount rate. The target interest rate on the $36 billion in repos remains unchanged. However, the lucky borrowers of the $11 million in primary credit will save 50 basis points on their interest payments. That comes out to $152.77 per day. All I can say is, Helicopter Ben is a freaking genius. He's out there hovering over Wall Street, showering the financial markets with some change he found in his sofa cushions. Thanks to this bounty of free money, grateful traders bid up the market value of US stocks by some $600 billion today alone. Now that is what I call getting value for your money. Martin Source: http://www.federalreserve.gov/releases/h41/Current/
Its not even free money. Its imaginary money since only banks on death's door borrow at the discount window.
That release is for the week ended Aug 15. Which means we don't know what happened yesterday or today. Someone might have needed a few armored trucks of cash. We'll find out this time next week.
Run on CFC's banking unit would have spread. In a fractional reserve banking system unnaffected banks become affected very quickly. There will be more and then what will he do? If you want to withdraw your money choose a quiet sleepy branch in the middle of nowhere. Bush will probably authorise the National Guard to fire into any gathering of more than two people outside a bank.
Only way that happens is if you think the FDIC is going to fail. Which it most certainly isn't. They aren't even involved yet. Get a grip.
Second para was obviously tongue in cheek. Having been through this in Asia I will tell you that everybody who had money in non bank financial institutions had to wait 5 years to get back their guaranteed money. A friend who had been living off interest on her deposits was put into dire straits. Many people will know or guess this and will act to preserve their wealth/liquidity - if there are enough of them FDIC becomes meaningless - at least temporarily - all it takes is one non bank institution to be cleaned out quicker than they can drive more money there from the Fed and it will spread like wildfire. I accept it will be temporary, but it will not be good for confidence or business. The banks continued to function. I assume non bank deposits in US are covered by FDIC - in some countries it is only banks. Is there a limit on FDIC coverage ? Are broker chequing accounts covered by anything other than the near meaningless deposit insurance? We had front page pictures of rumored to be failing banks with 4ft high pallets of money on display behind the counter. I kept most of my money in the bank during that one and suffered no ill effect but I would NOT do that now as I am older and wiser and view the situation with the widom of hindsight. I still have money in a US brokerage acount but am prepared to pull it, like many others. If I had money in a US non bank like CFC I would have pulled it already, just like many others did, because while the chances of failure are small, the problems it causes if it happens are huge.
gee a run on the banks to get dollars, really? maybe if they offered Euros or Pounds I could see it....but dollars??
"Saturday August 18, 12:25 PM Sentinel files for Chapter 11 bankruptcy NEW YORK (Reuters) - Sentinel Management Group Inc., a U.S. futures commission merchant whose decision to freeze client accounts on Tuesday helped roil global financial markets, filed for Chapter 11 bankruptcy protection late on Friday. The cash management company, which managed about $1.6 billion of assets, said its board decided it was in "the best interests of the corporation, its creditors and other interested parties that a voluntary petition be filed ... in an effort to restructure the indebtedness of the corporation," according to a filing in the bankruptcy court for the Northern District of Illinois. Sentinel told clients in an August 13 letter: "we are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients." The Northbrook, Illinois-based firm said then that "we don't believe it is in anyone's best interest if a run on Sentinel took place and we were in a forced liquidation mode." The bankruptcy filing said Sentinel estimated assets and liabilities both exceeded $100 million, but it wasn't more specific. It said it estimated it had at least 200 creditors. It said it signed a letter on August 15 engaging the law firm of Goldberg Kohn Bell Black Rosenbloom and Moritz Ltd. to help with the bankruptcy petition. " These guys have nothing to worry about, right. I imagine they are all on the golf course this weekend relaxed and smiling and knowing everything will be allright with the funds they rely on for their livelihood and to pay their mortgage over the next few months/years. Probaly some are at the Mercedes dealership, as with nothing to worry about they are probably thinking now might be a good time to buy that new 600SL they have been eyeing for so long.
600 SL ? No, no ! S 65 AMG is the answer ! MSRP$ 186,575* Engine AMG-built SOHC 36-valve, biturbo V-12 engine Net power 604 hp @ 4,800 - 5,100 rpm Net torque 738 lb-ft @ 2,000 - 4,000 rpm