I think one who has really scared is the Fed. The Sunday night cut shows they are spooked and has exactly the opposite effect than the one they anticipated. Tomorrow our President is meeting with his advisers. God Help America.
Fed Aims to Prevent Panic With More Direct Borrowing
The Federal Reserve Board, aiming to alleviate the deepening crisis in financial markets, is expanding its reach as a lender and taking emergency action to encourage direct borrowing from the central bank through lower rates.
In an unprecedented Sunday night announcement that underscores the depth of the market fears, the Fed said it has authorized a new lending tool to help its network of primary dealers — including firms that interact with the Fed daily but don’t fall under its direct supervision — to provide financing in securitization markets. Growing worries about securities backed by mortgages has been exacerbating the credit-market upheaval and threatening the overall economy.
The initiatives are “designed to bolster market liquidity and promote orderly market functioning.” the Fed said in a statement. “Liquid, well-functioning markets are essential for the promotion of economic growth.”
The Fed governors in Washington also approved a request by the Federal Reserve Bank of New York to lower the rate at which it lends directly to banks by a quarter percentage point to 3.25%. That narrows the gap between the discount rate and the federal funds rate, for overnight lending between banks, to a quarter point. It also extended the length of those direct loans to 90 days from 30 days.
The discount window is often seen as an emergency tool for banks to borrow from the Fed, which acts as the nation’s lender of last resort. The central bank last August halved the spread between the discount rate and federal funds rate to encourage direct borrowing as the credit crisis flared. The 12 reserve banks around the nation, which make the direct loans to institutions in their regions, submit discount-rate requests to the governors in Washington for approval. The Fed was expected to lower the discount rate in lockstep with the federal funds rate after its policy meeting on Tuesday. Futures markets are expecting at least a half-percentage-point reduction in the federal funds rate, with some investors betting on as much as a one percentage point cut.
The Fed said the new lending facility, through the Federal Reserve Bank of New York, will be available Monday and remain in place for at least six months. The tool will allow the Fed’s 20 primary dealers, which are involved with its daily money-market lending operations, to borrow directly from the central bank. Among those dealers is Bear Stearns, which spurred the latest market fears last week with its liquidity crisis and announced Sunday night its sale to J.P. Morgan Chase –Sudeep Reddy
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