Money market rates doubled overnight, forcing interventions by central banks overseas. and the Fed joined suit this morning. From Bloomberg:
The Federal Reserve added $50 billion in temporary reserves to the banking system when it arranged overnight repurchase agreements, or repos.
The rate for overnight loans between banks had opened at 3.75 percent, above the Federal Reserve’s targetrate, as American International Group Inc.’s credit rating cut increased banks’ reluctance to lend. The rate dropped to the central bank’s target of 2 percent after the cash injection.
The Fed added $70 billion in reserves to the banking system yesterday, the most since the September 2001 terrorist attacks, to bring borrowing costs down after the bankruptcy of Leman Brothers Holdings Inc. triggered a hoarding of cash. Funds opened at 3.5 percent yesterday.
“From a pure reserve perspective, the desk might not need to arrange any repos at all today,” Wrightson ICAP analysts wrote in a note. “From a dealer-funding perspective, another round of large morning repos may have a calming effect.”
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Is this the love? See here – http://moneyistheway.blogspot.com/2008/09/where-is-love.html
This is panic sheer plain and simple by the global central banks.
The post title is misleading (as is much of the reporting on this issue) because it fails to consider NET additions/withdrawals of liquidity.
At the Fed page
http://www.newyorkfed.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE
it can be seen that 78B of repos matured today: 70B from yesterday and 8B from Sep 11. Therefore, the net result of the 50B added today (so far) is a WITHDRAWAL of 28B.
Similarly, yesterday’s net addition was 65B, as there were 5B maturing. So that in Monday and Tuesday (so far) altogether there’s been a liquidity injection of 37B.
And where would the Fed get this money?
Don’t worry it is all temporary. story is not misleading at all. The Fed is desperate as is the ECB, BOE and BOC.
The financial markets need NEW money, capital. Not loaned money that is temporary. The Fed is in a real box here. Allow the Treasury to default on its obligations or Print. Take a look at this morning’s TIC data…. OMG.
“Treasury International Capital (TIC) data for July 2008 are released today and posted on the U.S. Treasury website (www.treas.gov/tic). The next release, which will report on data for August, is scheduled for October 16, 2008.
Net foreign purchases of long-term securities were $6.1 billion.
Net foreign purchases of long-term U.S. securities were negative $25.6 billion. Of this, net purchases by private foreign investors were negative $20.7 billion, and net purchases by foreign official institutions were negative $4.9 billion.
U.S. residents sold a net $31.7 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $8.2 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $8.4 billion. Foreign holdings of Treasury bills decreased $4.4 billion.
Banks’ own net dollar-denominated liabilities to foreign residents declined $58.1 billion.
Monthly net TIC flows were negative $74.8 billion. Of this, net foreign private flows were negative $92.9 billion, and net foreign official flows were $18.2 billion.”
I hate to say this, but in all honesty, America can’t afford The Iraq War or to continue playing the game of denial in regard to accounting fraud. As the market continues to decay, the only chance for intervention will come from actions to bring Enron-like CEO criminals before the press, and hang them for what they have done! In addition, the culpability, collusion and corruption of The Bush Coup is without a doubt criminal conspiracy and culpable negligence!
On the other hand, we can behave as Japan did (for thirteen years) by being in denial about corruption and then face a prolonged era of recession-like torture, as the crooks all walk away with our future!
FROM MATTHEW DUBUQUE
Geithner is doing an excellent job of trying to engineer a HARD landing for the planet (with some serious injuries) rather than a CRASH landing. There is some chance he will pull it off.
But there WILL be a price. This is from the first person I know who said Lehman would pay the price, as I did so here.
I’m sure Geithner won’t get the credit for his brilliance among the chattering classes.
But he will from the people that count. You can be sure of that. Watch his career path.
I hope everyone is well. My debut into the film world debut was most gratifying last night. Very warm.
My role here was to try to wake people up over the last 6 weeks, in the tradition of Paul Revere.
That role is now over.
I’ll be checking in from time to time.
Hope everyone is staying well rested, healthy and getting enough beautiful sunshine.
It helps you know. The beauty of nature is more profound than texting. Hard to believe, but true.
MATT DUBUQUE
At 9.40 the Fed added another 20B.
Therefore so far there is a net withdrawal of 8B for Tue and a net addition of 57B for Mon and Tue altogether.
Matthew Dubuque: “My debut into the film world debut was most gratifying last night. Very warm.”
Man, you are in serious need of attention and affirmation. Holy smokes. Your posts just get more and more bizarre by the day. Keep ’em coming. Whoa Daddy.
Yves why do you let this shill self promote on your site?
MATT DUBUQUE
If your objective was to wake people up you need to spend more time on mainstream blogs where your professorial arrogance will be play better.
Geithner has been at the NY fed for years?
“Timothy F. Geithner became the ninth president and chief executive officer of the Federal Reserve Bank of New York on November 17, 2003.”
While I like his SAIS qualis, the call for him to be the right guy is like saying Fuld was the right guy for LEH.
I second S’s query about Dubuque.
Dubuque says: My role here was to try to wake people up over the last 6 weeks, in the tradition of Paul Revere.
We were honored by your presence, bongo boy. What would we have done without you. Allow us to find out now, please.
Matt-
Your presence has been extremely informative and your comments have been some of the most lively pieces on here. By all means keep them coming.
Joe
FROM MATTHEW DUBUQUE
Special note:
If the Fed had not TEMPORARILY suspended reg prohibiting commercial bank funding IB subsidiary yesterday, we would have watched Merrill have a nuclear implosion yesterday and today.
They avoided that.
Now it’s on to attempt the extremely risky and difficult HARD landing (rather than CRASH LANDING) for the economy.
They did not want to allow a wing to fall off the plane during the descent in hurricane conditions.
This is going to be exceptionally difficult landing and we can’t be sure of ANYTHING until AFTER February of next year.
AFTER February the Fed can consider reimposing subject regulation. Not before.
Can Geithner pull all this off?
Stay tuned.
MATT DUBUQUE
Re: The comment of Stuart above on TIC data, here we have a partial explanation regarding why the FED OMC didn’t do a cut _of any size_ let alone a chunky one. Now, the significant overseas capital inflows aren’t private but public, as Brad Setser has done yeoman work sniffing out over at his blog along with other specialists. But nonetheless, there is a major collapse of confidence in the $ overseas once the GSEs went wobbly, which must be far worse now. I feel sure that foreign CBers and their major financial and policy level equivalents have expressed to Bernanke, Paulson, and even Bush fils that further unilateral rate cuts in present circumstances are deemed Not Helpful, or even a hostile act. For the Chinese and the Japanese to keep pouring their ‘profits’ back into Treasuries, they need reassurance that the value of those instruments will be defended. So the Fed clearly has no choice but to defend them.
On the issue of a coordinated conservatorship or rescue of AIG posited by Yves in another thread, we won’t see that for the reasons, to me, we are not seeing overt international coordination regarding the rescue of America: concerns over the _appearance_ of sovereignty. Regardless of where AIG makes the bulk of its profits, it is incorporated in the US, and defined publicly as a US blue chip financial (even if it is presently green sheep dip). A multiple intervention shares the burden, yes, but dilutes the appearance of sovereign control. And to me, the CBs of all concerned look to have a strong desire to avoid the appearance of foreign diktat to the US on financial actions, now. And I can understand this. American chauvanism would respond poorly to being picked up off our collective fat ass by furriners, which is exactly what is going to happen. Congress would hiss and moan, and make trouble to keep their own constituents off their personal backs, not that said representatives of the public would much care themselves. I think the Japanese and the Germans, to say nothing of the Russians and the Chinese, know too well that they will be blamed rather than thanked for any overt direction SEEN TO BE GIVEN to the Fed and the Treasury. Oh, and the Chinese and German public may not be any too happy to have their sovereign treasure shipped off to keep American arrogance in the pink, the manifest financial necessity from the standpoint of self-interest in this notwithstanding. So, to me, those foreign financial powers look to be at pains to _not_ be seen ‘infringing’ the American assets they are in the process of bailing out frantically. I find all this fascinating, and be sure that the American rube-ocracy will be the last to know what is happening, if they ever find out.
We are in a new world, here. I have been hoping and calling for _coordinated international action_ to stem the financial crisis, and it would seem that we have the half-assed version of that. Not public coordinated moves, but privately commensurate moves under duress, now. It would be interesting to know if any one organization or actor is of principal weight in this; clearly, it is NOT being orchestrated from the US, or not obviously.
And on a parallel note, Matt Duboque, I have no desire to pick a quarrel with you, but your emphatic call that the Fed would cut did not, and does not, engage with the present fact set in which they are compelled to act; I weight your remarks on this issue accordingly. I do not doubt your close engagement with Fed and Treasury policy and policy makers through decades; that is not at issue directly to me in this. And yes, at any time in the previous twenty years and more the Fed would _most certainly be cutting and would have been guaranteed to cut_ after this Ides of September massacre. . . . But they didn’t, can’t, and aren’t going to do so unless every other CB is moving down FIRST and in coordination. We see why now. And I take the background message in the FOMCs remarks today on ‘inflation’ to heart, if not the foreground message. Inflation, classically defined, is not the present problem, in the US, as of Sep 08. But dilution is coming, and that is the tacit remark in the Feddies presspeak. Even following the non-verified analysis in the comments of this thread above, we have something like $37B unsterilized from the Fed in the last few days. The Chinese have cut rates and eased rules in the last few days, and that in an environment which remains actively inflationary. The ‘funding flood’ is coming, and how not? The Feds cannot make the GSEs and AIG ‘good to face’ without magicing up faux treasure, so here we go. And that, btw, is NOT deflationary in effect. To me, you’re reading the past you know rather than the present you don’t. Think it over; you have the content to see these issues in a larger perspective.