Category Archives: Federal Reserve

Coordinated Central Bank Action Fails to Relieve Money Markets

The coordinated central ban effort today to restore some level of activity to stressed funding markets, in which five central banks cut their policy rates by a half a point and China cut rates by 0.27%, is a resounding failure. From Bloomberg: Overnight corporate borrowing costs jumped, Treasury bill yields fell and the bond market […]

Coordinated Central Bank Rate Cuts Stem Equity Rout

The Federal Reserve, ECB, Bank of England, Sweden’s Risbank, and Bank of Canada all made rate cuts, each of a half a percent; China cut its benchmark rate by 0.27%. The move pared substantial losses in foreign equity markets (the FTSE, which also benefited from a capital injection into stressed banks) is up slightly, and […]

NY Times: Fed Considering Buying Commercial Paper

Now we see how the Fed’s toolkit is not well suited to the problem at hand, and its next-best moves are dubious indeed. Acute conditions in the commercial paper market, a vital source of short-term funding for large corporations and banks, threaten to produce a sharp contraction in business activity. Commercial paper defaults have been […]

Roubini: Fed Fiddles While Rome Burns

We noted earlier today that neither the signing of the much-touted bailout bill, nor the dramatic increase in size of the already bulked-up Term Auction Facility (it has been enlarged six-fold in a mere two weeks) has had any impact on conditions the money markets, which are barely functioning. We noted earlier and reiterated that […]

Term Auction Facility Increased to $900 Billion, With No Apparent Success

The increase in the size of the Term Auction Facility, from $150 billion a month ($75 billion per two 28 day auction) as of its last auction to $900 billion today (with an interim plan to go to $450 billion that was blown past in this announcement) is an admission that the banking system is […]

Lehman Asked to Become a Bank, Rebuffed by Fed

In light of the Fed’s decision to grant Goldman Sachs and Morgan Stanley banking licenses, and the breathtaking damage of the Lehman bankruptcy, the central bank may have a bit of explaining to do as to why it turned down Lehman’s petition to become a bank in July. The other side of the coin is […]

Fed Considering More Extreme Measures, Further Expansion of Its Role

As the Fed’s interventions have failed to halt the progress of the credit crisis, the central bank has taken even bigger measures, only to see them provide at best temporary relief. As we have indicated, the Fed’s moves appear to have hit the point of being counterproductive. Why should banks deal with each other when […]

Fed Wants Citi and Wells to Kiss and Make Up Over Wachovia (Updated)

The Fed is pressuring Citi and Wells Fargo to settle their dispute over Wachovia. The assumption that there is a way to divvy the carcass that will leave each side feeling they got more than half a loaf. But the push is on to reach an agreement in principle before the US markets open, and […]

More on the Charge That JP Morgan Withheld $17 Billion From Lehman, Triggering Collapse

Reader Saboor passed along the day’s updates on the case filed by Lehman creditors last week, alleging that JP Morgan, Lehman’s clearing bank, refused to give Lehman access to $17 billion of excess funds held at the bank, precipitating the firm’s failure. I did not see an link to the case yet in a quick […]

Edmund Phelps Advocates Anglicized Swedish Approach for Fixing Financial System

Columbia professor and Nobel prize winner Edmund Phelps writes in a Wall Street Journal op-ed, “We Need to Recapitalize the Banks,” an article appears not to have garnered the attention it warrants in the blogosphere. Phelps comments approvingly on Sweden’s approach to handling its financial crisis, which had as its cornerstone reducing the size of […]

Merrill: Low Treasury Yields to Go Even Lower

Conventional wisdom has been that Treasuries have been the yet another bubble as cash exited equities and other risky investments, first feeding a commodities spike, then seeking a better home in Treasuries. But Merrill’s David Rosenberg, who was in a decided minority in seeing deflation as the likely outcome for the US (he has for […]

Credit Stress: Repos Behaving Badly

This report from Bloomberg: Rates in the $7 trillion-a-day market for borrowing and lending securities show that the logjam in credit markets is approaching the level seen after the March collapse of Bears Stearns Cos. Securities that can be borrowed at interest rates close to the Federal Reserve’s target rate for overnight loans between banks […]

Fed Adds $300 Billion to Term Auction Facility

This is on top of the $330 billion increase in dollar swap lines we mentioned this morning. From Bloomberg: The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression. The Fed increased its existing currency swaps with […]

Fed Increases Dollar Swap Facilities by $330 Billion, More than Double

The numbers attached to various emergency interventions just keep getting bigger and bigger. From Blooomberg: The Federal Reserve increased the size of previously arranged currency swaps with foreign central banks to $620 billion from $290 billion to make more dollars available to banks worldwide. Banks and brokers have slowed lending as they struggle to restore […]

Europe Opens Ugly

Hope you like the smell of napalm in the morning. Otherwise, this will not be your sort of day. I have to turn in, but the early morning sightings, as expected, are not at all pretty. What is particularly troubling is that central bank interventions may have become unproductive. Banks have quit lending to each […]