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Nickelless
Administrator
USA
5580 Posts |
 Posted - 05/30/2008 : 03:19:03
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The Federal Reserve's emergency loans to banks climbed to the highest level on record even as Wall Street investment companies scaled back their borrowing.
The investment houses were given similar loan privileges as the banks in March after a run on Bear Stearns pushed the nation's fifth-largest investment bank to the brink of bankruptcy and raised fears that other Wall Street firms might be in jeopardy.
A Fed report Thursday said the investment companies averaged $12.3 billion in daily borrowing over the past week, down from $14.2 billion the previous week.
Banks stepped up their borrowing, according to the Fed report. They averaged $15.95 billion in daily borrowing for the week ending May 28, compared with $13.5 billion for the previous week, and the total was a record. The previous high of $14.4 billion came in the week ending May 14.
The identities of commercial banks and investment houses are not released.
In the broadest use of the central bank's lending power since the 1930s, the Fed in March scrambled to avert a market meltdown by giving investment houses a place to go for emergency overnight loans. The program will continue for at least six months. Commercial banks and investment companies now pay 2.25 percent in interest for the loans.
Donald Kohn, the Fed's vice chairman, said in a speech Thursday night in New York that the Fed's series of unconventional actions to ease credit problems have "contributed to some improvements." But, he added, "market functioning remains far from normal."
To that end, the Fed also announced Thursday it will make a fresh batch of short-term cash loans available to banks as part of an effort to ease stressed credit markets.
The Fed said it will conduct three auctions in June; each will offer $75 billion in short-term cash loans. It would mark the latest round in a program that the Fed launched in December to help banks overcome credit problems so they will keep lending to customers.
The new round of auctions will be conducted on June 2, June 16 and June 30.
As part of efforts to relieve credit strains, the Fed auctioned $16.4 billion in Treasury securities to investment companies Thursday.
The latest auction drew bids for less than the $25 billion available. That could be a sign of some improvements in credit conditions.
In exchange for the 28-day loans of Treasury securities, bidding companies can put up as collateral more risky investments. These include certain mortgage-backed securities and bonds secured by federally guaranteed student loans.
The auction program, which began March 27, is intended to make investment companies more inclined to lend to each other. A second goal is providing relief to the distressed market for mortgage-linked securities and for student loans.
Kohn said the Fed's auction programs "have been an important innovation that we should not lose," seeking to make the case to extend them even after turmoil in financial markets recedes.
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redneck
1000+ Penny Miser Member
1273 Posts |
Posted - 05/30/2008 : 07:40:07
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Quote;
The identities of commercial banks and investment houses are not released.
(end)
Of coarse not...
That would show how much things are screwed up...
Who ....is protecting who........!
The Real credit crunch is yet to come.
But not to after the election.
Credit Card debt,will make the housing problem look tiny.
Heck, I would be willing to bet that there's people using their credit card to make mortgage payments.
Their already using it for everyday items like food,gas,electric and phone bill.
The problem is they are not earning enough to keep up with inflation.
Our Senators and Congressman don't feel it because they get pay raises and cost of living adjustments(COLA), that they give themselves.
When was the last time you got a COLA...?
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swusc
Penny Hoarding Member
USA
553 Posts |
Posted - 05/30/2008 : 09:56:01
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I know this whole thing sucks. Just remember what the Fed main goal---Lender of last restort.
The Federal Reserve is trying to let the bad loans work their way through the system. That can't happen if banks have to sell pools of loans at fire sale prices. If you give banks liquidity and let them take the losses over time, then you stop the liquidity problem related to these investments. You don't make them good investments, but you at least let their worth be calculated by true business condidtions.
So far, I doubt the Federal Reserve has actually put capital at much risk. I think the banks are good for the current loans. If this keeps going, then I am not so sure.
You might get an economic winter yet. In an Economic winter, debt is removed from the system by repayments and defaults. The whole economy deleverages on a mass scale (1929-1938). It is very painful, but you usually have a lot of growth afterwards because people can start leverage again after awhile (1946-2000).
-SWUSC |
`Everybody is ignorant. Only on different subjects.' Will Rogers
"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." Alan Greenspan, 1966. |
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Banks step up Fed loans, investmnt frms scale back
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