Let's be precise:
federalreserve.gov
Release Date: March 16, 2008
For immediate release
The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.
First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.
Second, the Federal Reserve Board unanimously approved a request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3-1/4 percent, effective immediately. This step lowers the spread of the primary credit rate over the Federal Open Market Committee’s target federal funds rate to 1/4 percentage point. The Board also approved an increase in the maximum maturity of primary credit loans to 90 days from 30 days.
The Board also approved the financing arrangement announced by JPMorgan Chase & Co. and The Bear Stearns Companies Inc.
Let's look at:
1. create a lending facility to improve the ability of primary dealers
This is what they did several days ago with the expanded Tbill collateralized TAF called TSF. In this case they've widened the collateral to include just about any old junk.
2. request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3-1/4 percent, effective immediately.
Note "request". NyFed initiated a request and the Board approved. NyFed knows what's happening internationally, a drain on liquidity, which now will be exacerbated by the BSC news. The Board is at home watching TV while the green screens in the basement are lit with dollar transfers all over the world. Ny Fed did not like what they were seeing in the flows, like, massive bid hitting on the dollar and dealers backing away. NyFED had to act but needs approval for a dramatic move, and that got Bernanke out of the TV room. This is most unusual to have NyFed initiate the action.
The actual discount rate adjustment is a push, no consequence. Who goes legitimately to the Window? Who needs to? There's no legit demand for funds in the system. With the new facilities the junk demand is being handled well, but not when banks world wide sniff out trouble. They all run, and would sell their banks for a nickel if they thought they could get it, and this puts the squeeze on available cash. |
