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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Mike Johnston who wrote (86433)	9/18/2007 8:02:46 AM
From: Giordano Bruno	Respond to of 110194

Discount Rate Is Also on the Fed's Table By GREG IP September 18, 2007; Page A2 WASHINGTON -- When the Federal Reserve meets today, a cut in its main short-term interest-rate target, the federal-funds rate, won't be the only thing on the table. Officials will also have to decide what action to take on the lesser-known discount rate, at which banks borrow directly from the Fed. Normally, banks pay a "penalty" to borrow from the Fed's discount window of one percentage point over the target for the federal-funds rate, at which banks lend to one another in a market heavily influenced by the Fed. Banks seldom borrow at the discount window because they can borrow federal funds more cheaply. The direct loans also have carried a stigma because they were often a last resort for troubled banks. On Aug. 17, in a bid to improve the flow of cash to clogged credit markets, the Fed cut the discount rate to 5.75%, a penalty of half a percentage point above the 5.25% federal-funds target. It also extended the term of such loans to as long as 30 days from one day, and declared that using them would be regarded as a sign of strength, not weakness. Its hope was that banks would use discount loans, or the knowledge that they were available, to finance customer holdings of hard-to-sell securities such as asset-backed commercial paper and jumbo mortgages. Many on Wall Street feel the Fed has yet to make the discount window attractive. The actual penalty, they note, is larger than the normal half point because the Fed has allowed the federal-funds rate to fall to 5%, a quarter point below its target. Many market participants recommend that the Fed cut the discount rate so it sits just a quarter point above the fed-funds rate or even matches it. David Greenlaw, chief fixed-income economist at Morgan Stanley, said that while he doubts the Fed is about to make such a move, it could take the place of a deeper cut in the fed-funds rate that the Fed fears could look like a bailout of investors. Peter Hooper, chief economist at Deutsche Bank Securities, said the Fed could compromise by cutting the fed-funds rate a quarter point and the discount rate a half point. Mr. Hooper said the problem in the money markets is that banks, which normally lend and borrow for as long as 90 days, now do so for only a single day or a few days at a time. "It's difficult for banks to have to roll over all of their funds every day. It's manageable ... but if something interrupts this funding, whether a crisis of confidence or because of a major failure, you're much closer to the edge." The Fed could limit that risk by encouraging banks to get 30-day discount loans. Wall Street officials say they are still reluctant to borrow at the discount window because, if their identity became known, it could make counterparties skittish or hurt share prices. If the penalty were cut or eliminated, they say, banks could argue they were using the window because it was profitable. Discount-window loans have typically been about a few hundred-million dollars each week. After the Fed's Aug. 17 changes, loans jumped to $2 billion, mostly the result of four banks each publicly announcing a $500 million loan in hopes of eradicating the stigma. Last week, the total jumped to $7 billion, which money-market participants attribute to a technical shortage of funds related to the Fed's management of bank-reserve balances. That jump might reassure Fed officials that banks are overcoming the stigma of borrowing from the discount window, negating the need for lowering the penalty. Officials also worry that cutting the discount rate too much would prompt many banks to fund all of their needs from the window instead of the money market. That could make it harder for the Fed to manage the fed-funds rate with open-market operations. Write to Greg Ip at greg.ip@wsj.com

To: Mike Johnston who wrote (86433)	9/18/2007 8:48:40 AM
From: westpacific	Read Replies (2) \| Respond to of 110194

M3 running at 11% in Europe....... Out of control inflation due to out of control liquidity, why we cutting? Their answer, more liquidity, so easy - just keep printing - Rogers nails it........not so simple. Simple, reward Pig Men, kill hard working labor. We be in big trouble folks. Get into the hedge fund business. The only thing stopping them was keeping M3 at the 4% level, why you think they did away with it. The more they print, the more the Pig Men make and the more the little guy goes down the tube...... Jim Rogers is so right, say goodbye to your dollars - inflation and collapsing dollar. What a combo as we head into the poor house. Just pray these clowns do not let M3 go to 20% - or say hello to Argentina. Not if your on Wall Street. Read this: and ask, why we bailing these folks out? iht.com West