The market is screaming higher on the Fed emergency plan with four other major central banks to inject more liquidity into global markets.
It smacks of panic, and suggests the Fed is very worried.
Yesterday’s witticism, Top 10 Things You May Not Have Known About the FOMC, may need some additional editing.
1.
“Hey, Wall Street: We’re not your Bitch anymore.”
Should be changed to:
1. Please forgive us! We crave your approval!
I want to see just how much they’ve loosened standards for what they’ll accept as collateral for these short term fundings. I find that extremely interesting.
Ben is heading for the prison shower room…
To understand how controlled our federal government is by private interests, they won’t even regulate toys that poison kids with lead because “it would hurt corporate profits to implement the changes” or some other BS.
So if the federal government has no problem poisoning your kids to protect private interests, why is it so surprising that other high-level institutions hurt the public to protect the private?
I think the most dangerous people in the country now are the “free market” nutcases who got us into this economic mess, and into a lot of other messes we probably don’t know about. Sensible regulation ain’t so bad.
Dunno. From here these two days look like a very slick operation against the shorts. The Fed hates shorts.
Is the FED becoming desperate?
And why didn’t they do this months ago?
Don’t Drop the Soap.
florida-
like we will EVER get any color on that from them. They just opened it up to auto loans on non-operating vehicles. So that Chevy that is sitting in your neighbor’s yard?? Well that works too…
Desperation does’nt begin to explain this move.
Ciao
MS
Bernanke is worse than Greenspan.
At least Greenspan waited for almost 1 year after Nasdaq popped to cut rate.
But Bernanke started cutting rate when market was only like 7% from All Time High.
And Bernanke is chaning centuries of Banking Laws to help his wall street buddies.
Dunno. From here these two days look like a very slick operation against the shorts. The Fed hates shorts.
I say more like a huge gift for certain people who already knew wtf was going to play out. Remember who’s running the country.
Barry – I think the fed did a great move yesterday to regain control. I think they are now working on a solution to get LIBOR down to more normal levels, as obviously rate cuts wont do the trick!
http://www.urbandigs.com/2007/12/fed_action_coming_libor_target.html
FFR & 3-MTH LIBOR has a spread of 86 basis points right now! Historical is about 10-12 bsp. Problems in creditville. The fed is probably going to surprise with more actions soon.
Wonderful move by the FED. This is better than or equal to a 50 bps rate cut. They make inflation hawks happy with a 25 bp rate cut…then make the liquidity/credit worry warts happy with a coordinated strike.
Barry – please give Ben some credit and a “pat” on the back! This is a well thought out play…it is the best option possible for a smooth landing.
Just imagine… what would be like if Ken Lay was running the Federal Reserve…
Financial Axis of Evil — Bush + Paulson + Bernanke
I think these 3 deserve a X-mas praying for their deserved right to HELL!!
How is this going to help the guy who can’t pay his mortgage? What exactly has changed with the sub-prime mess over the last 24 hours?
This is a street corner game of “find the queen” as the cards get shuffled around.
The market is acting like they know where the queen card is and betting heavily.
Do I understand correctly? the banks have to bid on the money? so they could pay 6%-8% for it?
All these great rates for cash, and all I get is pummled by the S&P
Barry – please give Ben some credit and a “pat” on the back!
Don’t you mean a “put” on the back?
I tell you who is pissed, people who actually sold stock yesterday.. Those people bent over for the soap.
Sam –> “How is this going to help the guy who can’t pay his mortgage?”
It won’t! Thats not the feds job. That person will have to deal with their own problems, and that loan will joins thousands of others that arent being paid, contributing to this mess on wall st as loans were securitized and dispersed to investors.
In the end, if you cant afford your home, you shouldn’t have bought in the first place! Thats a personal issue. There are tons of people who fit this bill and time will have to heal this wound.
Where can I find a reliable summary of the injections by central bankers. I see tid bits and mentions but no specific numbers…this might prove to be interesting to track the post economic effects (aka PEE).
This is ugly. It’s like breaking up with a girl who treated you like crap for all the right reasons….. and then not being able to live without her and coming crawling back in desperation.
Ick! See my: “Actually, We’re Still Your Bitch! Sorry About Yesterday! Oops :)” :
http://www.topgunfp.com/actually-were-still-your-bitch-sorry-about-yesterday-oops/
Let’s put the TAF Plan in context: the Fed has agreed to lend $40B in two auctions in Dec 07, and another unspecified amount in two more Jan 08 auctions, yet the FHLBs are already lending in excess of $750B to financial institutions.
Bottom line IMO: TAF will help a smidge, that’s all. The real pain of deleveraging will continue as collateral values (home prices!) continue to decline and borrowers default on their mortgages. The supply of homes is astronomical and growing, and the demand for them is paltry at best. Why buy now if you know in a year or two prices will be much lower? The cycle is gonna feed on itself, it’s not pretty now and it will get worse the longer people choose to forestall the pain.
Barley,
the fed will email you the open market operations, if you sign up for it. but don’t ask me for a URL. Sorry
in other news:
Bears take down 100pts from the bulls… Super bearish.
now we have to play 1490 again, I’m thinking it no longer plays.
Now do we get the rumor that the fed is going to cut another .25
Barry – are you hoping for a recession?
~~~
BR: I don’t hope for anything, except health.
Instead of hope, I try to discern what is actually happening, and make appropriate decisions based on that assessment of reality.
Papa’s got a brand new liquidity vehicle.
Let the great socialization of costs begin(again). How many times will you get punched in the face for other people f*ckups before you put a stop to it?
Eric Davis:
Nobody will bid higher than the discount rate. Borrowers can already borrow as much as they want at that rate as long as they have acceptable collateral to support the loan. Very little borrowing is happening at the discount window, so this move is a way to stimulate that.
That it’s coordinated with several central banks only underscores how serious and widespread the problem is.
I agree with Mike e. This is not an act to garner approval. It’s a creative policy reponse that helps reduce the moral hazard consequence that arises from the typical response which is to lower the FED Funds rate every time there’s a financial crisis.
Hats off to the FED.
Moin from Germany,
Quote Fed
“Acceptable discount window collateral generally can best be described as any asset that can confidently be liquidated within a reasonable period of time at the value at which it is accepted.”
The BOE and BOC are also accepting all kinds of collateral….
I agree it was a good move, but timing is everything. Why wasn’t this part of yesterday’s package and then they’d have a decent commentary to release as well. This only confirms they are Wall Street’s bitch! Did the right thing for the wrong reason (stock market drop). They should be reacting to economic conditions to keep the economy afloat. That never results in whip-saw moves like we just saw.
Yeah, glad I sold half of my SPY and IWM call yesterday! I think the other poster may be right. Maybe they are trying to limit the negative forces by jerking the shorts around. Tougher to have a market plunge 400 points no matter what the economic news when you keep leaning into the shorts.
How’d you like to be the poor SOB that actually predicted the fed cock-up correctly and shorted. There would have been little reason to close the bulk of your position yesterday because Ben et al gave pretty much no reason to buy stocks until just before the next meeting. One could expect at least a gradual decent through the end of the year. Then we gap open 250 or so today. OUCH!
I think this is a good move, but they just suggested that they were auctioning at a fixed rate… how is it an auction at a fixed rate…
It’s nice to have some other heads to mull this over with….
in 5 years it will be “I traded through the great sub prime debacle.”
and this starts looking like a real plan as opposed to printing money.
I wonder if no bank but the fed will loan money to Citi….. I guess it is a market.
Speaking of Citi. How about the timing of that announcement? Within minutes (a minute?) of the Fed announcement. What signal was that saying? If the market went up people were free to assume it was approval of Citi’s choice but if the market tanked everyone would be focusing on the market instead of the Citi move? If it’s really that tough to find a new head of the beast that is Citi, maybe they should break it up into something manageable?
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0Ex9E75uE8s&refer=home
It may be worth reading the content of the Central Banks liquidity programme in substance the support is limited to 20 billion USD through auction
There is no subject of rant or rejoicing, just smoothing the end of the year and for a further 6 months meanwhile the Jungle Law will prevail through money market operations.
How many think the trading desks at GS didn’t get the long short of it right? Hold up your hands.
To think that the FED is panicing after the market reaction yesterday is at least naive.
The FED simply wants to disinguish the price of money from the availability of money. It says there is money but at a price ( mind you, NOT a penalty rate, just at a price that is determined by other parameters, essentially inflation risk)
To imagine that the FED, with their army of economists and traders ( yes the FED has trader, savy as well) “doesnt get it” is naive.
I think soon the penny will drop that there is no Bernanke Put and that assets will have to be priced on the basis of their merit rather than on the expectation of a cut in interst rates.
At least from the looks of things at 12:45, the promises don’t seem to be having their intended effect.
all i hope is that that get this libor rate down before next february becasue thats what my arm is predicated on and thats when i reset. i am sure many others are in the same boat. ugggghhhhhh!
Sean – In Bernanke’s doctoral thesis centered on the Great Depression – And he postulated that had the FED lowered rates all at once at the very beginning instead of gradually, much of the pain could have been averted.
This is such total BS, in August they made a special announcement to say the window was WIDE open and no one used it, so now they are going to try to give the money away?
So what if all money is taken at 3.8% and invested in 3m T bills at 3.8% ? How exactly does this change anything?
Still no medicine for a hangover. The only thing that can be done is to wait for the system to clean itself out.
I can haz 300 Dow points back?
Oh hai! I ment 2 sell stox.
From Wikipedia–
“Monetarists, including Milton Friedman and Ben Bernanke, argue that the Great Depression was caused by monetary contraction, which was the consequence of poor policy making by the FED and continuous crisis in the banking system. (By not acting), the FED allowed the money supply to shrink by one-third from 1930 to 1931. Friedman argued the downward turn in the economy starting with the stock market crash would have been just another recession. The problem was that some large, public bank failures, particularly the Huntly NY Bank, produced panic and widespread runs on local banks, and that (the FED sat idly by) while banks failed.
He claimed (if the Fed had provided emergency lending to these key banks, or simply bought government bonds on the open market to provide liquidity) and increase the quantity of money after the key banks fell, all the rest of the banks would not have fallen after the large ones did and the money supply would not have fallen to the extent and at the speed that it did. With significantly less money to go around, (businessmen could not get new loans) and could not even get their old loans renewed.” (My emphasis)
The FED has certainly acted and not sat idly by in this crisis.
The FED has provided emergency lending and bought repos.
Businessmen (of the 20 banks who can use the discount window)have alot of toxicity in their portfolios therefore; do not want to loan to each other in order to forestall further exposure. Instead they’re putting the liquidity in their reserves.
By having auctions, more banks (regionals) will be able to bid on FED money. This in effect circumvents the large banks because they’re not getting it done. All they know is that; we want more rate cuts.
All this governmental intervention has done is forestall the inevitable and probably contributed to its complexity on how it will eventually play out. The FED should get out of the way and let the chips fall where they may. Sure people are going to get hurt but it’s going to happen anyway so let’s get on with it. The markets need to cleanse themselves.