Premarket Action: Bravo Bernanke!
Through this premarket action, some of the world's most important central banks are working together to bring liquidity back to mortgage markets.
In dramatic premarket fashion, the U.S. Federal Reserve in concert with the ECB, Bank of England, Bank of Canada and the Swiss National Bank are undertaking creative, concrete and substantial action to address credit market issue. This ties right in with our discussion over the weekend, that the intangible in the economic dilemma is human creativity and the problem solving human mind. It is constantly discounted as a stagnant economic factor, while it proves itself dynamic time and again. It finds solutions where none are evident or expected, and reliably so. We'll have more to say about the market in our follow up article today.
Please find the Fed announcement republished word for word below:
Since the coordinated actions taken in December 2007, the G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in funding markets. Pressures in some of these markets have recently increased again. We all continue to work together and will take appropriate steps to address those liquidity pressures.
To that end, today the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing specific measures.
Federal Reserve ActionsThe Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.
In addition, the Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.
The actions announced today supplement the measures announced by the Federal Reserve on Friday to boost the size of the Term Auction Facility to $100 billion and to undertake a series of term repurchase transactions that will cumulate to $100 billion.
Information on Related Actions Being Taken by Other Central BanksInformation on the actions that will be taken by other central banks is available at the following websites:
Statements by Other Central Banks
Thank you. (disclosure)
posted by The Greek | 9:15 AM
2 Comments:
Come on....as this really so ingenious? So now the Fed is in the role of taking on mortgage liabilities? What's next- auto loans and credit card collateral? Let the bad banks fail, and new better managed banks will rise up. Laissez Faire. Capitalism. Supply and Demand. Adam Smith's invisible hand. Stop preventing the inevitable, and let the market do what it does best- correct itself!
This is just a bailout for Bear Sterns and Citi. (possibly FNM as well)
Until the fed stands aside and lets this siv/cdo crap become marked to market and the whales roll over and die we wont see any improvement in the credit market.
The more the Fed prolongs the whale collapse the higher inflation will whack the us comsumer leading to a longer slowdown, maybe the Fed will wake up i dunno?
As someone have said it may all be due to the downgrade of AAA:
"This move is to protect the banks and "primary dealers" from the coming cuts on AAA MBS as mentioned in Bloomberg article. The Fed is allowing the banks to take on treasuries to avoid a big capital hit that is coming. The agencies likely tipped the Fed as they know full well the impact of a cut on these securities ratings under Basle II ratings-based capital.
This is a shadow capitalization, but in the end, capital will have to be raised, the Fed is hoping that it will be later in a better capital markets environment."
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