Sunday, March 16, 2008

More Fed Actions!

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Wow, I am going to never be able to leave the computer screen as the action is hot and heavy even on weekend around here.

2 more Fed actions - an immediate cut to the discount rate of 25% and a new facility that they just came up with to dump more mortgages on the balance sheet of the Fed. How do I know they just came up with it? They haven't even had time to think of a fancy name like the TAF or TSLF... it's just the "black hole" - give us your junk. Is that the smell of desperation in the air? More serious steps, not even a week after the last round? Seriously Ben, just BUY the stuff right now, let's stop with these parlor games of "borrowing" for 28 days... why all these song and dances first? Let's just get the conclusion - the Federal Reserve will be the owner of a vast amount of mortgages ... just do it Ben.
  • Federal Reserve Chairman Ben Bernanke said new steps announced by the central bank Sunday should help squeezed financial institutions get cash infusions-- a fresh effort to provide relief to a spreading credit crisis that threatens to plunge the economy into recession.
  • The central bank approved a cut in its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans. (something they rushed so quickly out the door, they didn't have enough time to even properly name!)
  • The new lending facility will be available to financial institutions on Monday. It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the loans.
  • The Fed also is broadening the type of debt it will accept as collateral in the lending facility. The Fed said such loans can be collateralized by a broad range of investment-grade debt securities.
  • The facility will begin on Monday -- and the maximum period for such loans will be extended to 90 days from 30 days.
Takeaway: So they are repeating what they did last Tuesday, but now extending it down to the 4 remaining investment banks. And taking a "broad range" of junk; meaning all types of junk are now going to be accepted. Especially if it has that special coveted AAA rating from Ambak and MBIA! And now instead of 28 days, we are going to 90 days at a time.

And as we all knows "extended as conditions warrant" means these are going to be outstanding for years. More risks for the taxpayers. Again, let's just cut out of the middle man here... just buy all this junk outright... we've been calling for this for months on end... this is the ultimate conclusion. Or instead of 90 days why dont you just say 1000 days? That's effectively buying it... or maybe 5000 days.

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