For immediate release:
To promote the restoration of orderly conditions in financial markets, the
Federal Reserve Board approved temporary changes to its primary credit discount
window facility. The Board approved a 50 basis point reduction in the primary
credit rate to 5-3/4 percent, to narrow the spread between the primary credit
rate and the Federal Open Market Committee’s target federal funds rate to 50
basis points. The Board is also announcing a change to the Reserve Banks’ usual
practices to allow the provision of term financing for as long as 30 days,
renewable by the borrower. These changes will remain in place until the Federal
Reserve determines that market liquidity has improved materially. These changes
are designed to provide depositories with greater assurance about the cost and
availability of funding. The Federal Reserve will continue to accept a broad
range of collateral for discount window loans, including home mortgages and
related assets. Existing collateral margins will be maintained. In taking this
action, the Board approved the requests submitted by the Boards of Directors of
the Federal Reserve Banks of New York and San Francisco.
Release Date: August 17, 2007
Financial market conditions have deteriorated, and tighter credit conditions
and increased uncertainty have the potential to restrain economic growth going
forward. In these circumstances, although recent data suggest that the economy
has continued to expand at a moderate pace, the Federal Open Market Committee
judges that the downside risks to growth have increased appreciably. The
Committee is monitoring the situation and is prepared to act as needed to
mitigate the adverse effects on the economy arising from the disruptions in
financial markets.
Voting in favor of the policy announcement were: Ben S. Bernanke, Chairman;
Timothy F. Geithner, Vice Chairman; Richard W. Fisher; Thomas M. Hoenig; Donald
L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; Eric
Rosengren; and Kevin M. Warsh.
Sources:
Federal Reserve Board
discount rate action
They knuckled under.
What does that mean? I’ve never seen a statement like that.
WE SOLD OUR SOUL FOR ROCK AND ROLL….
Black Sabbath…….
This makes me want to puke
Buy Buy Buy!! The hedgies need you to buy this rally so they can sell to you and raise cash!
So is it time to REALLY short the dollar? It was getting pounded against the yen yesterday…..
And, see, I told you all the Armageddon was well contained….
Lewis
Does this imply that the Fed funds rate will be cut on the 9/7 ? Or can it be reversed ?
Why would they cut the discount and not fed funds? Is this more chirurgical ?
Everyone on CNBC soiled themselves in unison this morning. It was symphonic.
Oh dear, the dollar is toast.
big question now….will this dead cat bounce get sold like that rally after the surprise rate cut at the start of 2001?
Or will 2008 play out like 1999….one last orgy of boom-frenzy.
“The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets.”
Home mortgage related assets? Like CDO’s?
I see that the rate on mortgages and personal debt has dropped accordingly. Not.
too bad they didn’t let the rest of us know yesterday when they did…
The markets are totally rigged. Good luck on getting the average investor to take part in these markets. How does this change the underlying fundamentals? We still have mark to model. We still have much tighter lending standards. We still have houses worth less today than a year ago. We have the EU investigating the Rating Agencies.
This is more a publicity stunt than a fix for any of the strucural problems we face as a country. I’m suprised at their pandering to the markets. Maybe it is to be Weimar Germany. I thought they were smarter than that but that’s what I get for thinking they actually wanted to fix the problems at this point. At some point this will now assuredly blow up.
Interesting how William Poole’s name is not on the list…
Fisher on list. Poole is not.
They said Poole wasn’t available for the vote so Fisher voted for him ( in his stead ).
Nice move…?????
Wowsers…..Schwab let me log in today, so now I can Buy Stocks!!!!!!
Do you fell lucky PUNK?
FYI…that is according to Steve Liesman who called the Fed this morning to ask. They told him the vote WAS unanimous, and Poole is out somewhere talking trade and couldn’t vote.
Stocks soared at the opening of trading Friday, propelling the Dow Jones industrial average up more than 300 points,
—
after the Federal Reserve, acknowledging that the stock market’s plunge posed a threat to the economy,
—
slashed its discount rate by a half percentage point.
Bernanke put is now official !!
Fed Cuts Discount Rate to 5.75%,
Citing Raised Economic Uncertainty
With risks to the economy from financial market turbulence rising “appreciably,” the Federal Reserve on Friday lowered the rate it charges banks on loans they receive from the Fed’s discount window, though it opted not to cut its primary policy tool, the federal funds rate.
The Fed’s decision to lower the discount rate and ease the terms of discount borrowing but not to cut the fed funds target suggests that for now it believes the problems in the markets are mostly related to the availability of cash, not the price of cash. (Read the Fed’s statement7.)
Importantly, the dual actions demonstrate to the market the Fed is aware of the macroeconomc consequences of the rapidly tightening supply of credit and is ready to cut interest rates in response if needed. Some in the markets had perceived the Fed to be taking a hard line on the current turmoil as a way of teaching investors to live with the consequences of unwise decisions. For now, the Fed will likely monitor the consequences of today’s actions before taking that additional step.
It’s possible that with these additional steps, enough order and confidence will be restored to markets that a fed funds rate cut will ultimately prove unnecessary. Indeed, after the announcement, futures markets indicated a sharp gain in stocks at the opening of trading today, led by financial issues.
But the odds have clearly risen that the Fed will deliver such a rate cut when it meets Sept. 18, if not sooner. The decision to release the statement was made Thursday evening in a hastily called videoconference of the Federal Open Market Committee, comprising the currently five sitting governors in Washington (two seats are vacant), five presidents of the regional banks who vote, and the remaining seven presidents who don’t vote.
Six Days Since Fed’s Last Meeting
As a sign of how rapidly the Fed’s view of the outlook has changed, the meeting came just six days after the committee met last Friday and didn’t discuss a rate cut, but merely agreed to a statement explaining the Fed’s more aggressive open market operations.
While today’s statement affirms the Fed’s view that growth will remain “moderate”, the Fed sees that outlook in jeopardy. It makes no mention of inflation, the primary focus of the Fed’s concern for the last year, implying that it now considers a rate cut more likely than a rate increase.
The nature of the release of the intermeeting statement altering its perception of risks was unprecedented. Since the Fed began releasing statements in 1994, it has only issued one between meetings when it also changed interest rates.
Besides the half-percentage-point discount rate cut to 5.75%, the Fed announced a change in the Reserve Banks’ practice “to allow term financing for as long as 30 days, renewable by the borrower.”
The Fed said the changes will remain in place until the Fed “determines that market liquidity has improved materially.”
Providing ‘Psychological Impact’
Softening its stance on intermeeting action, along with the cut in discount rates and the statement about growth risks, the Fed is aiming “to provide as much psychological impact as possible,” said Lou Crandall, chief economist at Wrightson Associates, the research arm of money market broker ICAP. “Without backing away from the principles they’ve outlined, they want to show as much support as possible.”
Banks have resisted borrowing at the discount window because its rate, generally a percentage point above the federal funds rate, “smacks of desperation,” Mr. Crandall said. “The discount window has a tremendous stigma. [The Fed] hopes to chip away at that” and make borrowing there seem like a more reasonable business decision.
Though the discount rate is often seen as symbolic, it can be a precursor of the Fed’s intentions for its primary vehicle, the federal funds target, which has stood at 5.25% for more than one year. However, economists said Friday’s discount move probably means no intermeeting cut in the federal funds rate in the near term.
“The discount rate cut also means no funds rate cut today, very near term, and the market had been looking for that,” wrote David Ader, economist at RBS Greenwich Capital.
Still, given that until now the Fed has maintained an official anti-inflation bias, Friday’s action increases the odds of a fed funds rate cut soon. The Fed’s next scheduled rate-setting meeting is Sept. 18.
First Intermeeting Move Since 9/11
“Although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably,” the Fed said in a statement.
“This is effectively a move from a tightening bias to an easing bias,” said economists at ING Bank.
The surprise move, the first intermeeting rate cut since the days following the Sept. 11, 2001 attacks, comes at a time when a credit crunch threatens global financial markets and, in turn, the economy. Six years ago, however, the Fed lowered both the fed funds and discount rate targets.
“It’s a good first step,” said Lehman Brothers economist Drew Matus. “This is much more effective in the short term than fixing the federal funds rate,” he added. Still, Lehman now expects the Fed to lower the fed funds rate by a half percentage point by the end of the year. Prior to Friday it had expected no change.
The Fed reiterated Friday that economic fundamentals remain sound. Recent data suggest the economy grew in excess of 4% in the second quarter and should expand around 2.5% in the third.
Still, the Fed did not address the question of whether risks to growth now matched or exceeded inflation risks. “I don’t think they’re downgrading inflation,” Mr. Crandall said. “I think they didn’t want to commit themselves.”
uh oh…….market weakening….that didnt work mr bernanke….back to the drawing board…
“Moral hazard? We don’ got no moral hazard. We don’ need no steenkin’ moral hazard!”
I’m no defender of the Fed, but cutting the discount rate is really just keeping up appearances. Why borrow at the discount window at a 50bps premium to Fed Funds? The more important part is they acknowledged the risk to growth, which you think would have people spooked as hell. But a relief rally was due, and this was the spark. Next week, when some new highly levered entity announces losses, this will be forgotten and the selling will resume.
This is a TEMP fix! Unwind your positions at the open..Damn trading software was bogged down I could only unwind a few positions.
A gift to investors and a chance to get out before more carnage comes!
Bernake was never a credible to me. Now I think he’s lost credibility with the markets too. How can you reverse your position of a few days ago that inflation is a concern and then drop the discount rate not 0.25 but 0.50 points? I know what it was: the pressure from Goldman Sachs and JP Morgan must have been tremendous. Who wouldn’t buckle when your buddies are losing their ass?
Phil
Maybe instead of the “Stealth rate cut” that everyone has been talking about, they have actually gone to a “Stealth Neutral Bias” vocalizing that the downside risks have increased.
SPECTRE, stormrunner, yes, welcome to Weimerica! Please enjoy your stay.
The central bank mandate is to preserve the payment system and prices stability,and they just fulfilled this mandate.
As for the equities markets they will be better off assessing their own fundamentals which are of a more structural nature
Does anyone know what the S&P futures were trading at right before the Fed made this announcement? Just curious to know what the futures were indicating the US markets would look like at the open after Japan’s big sell off yesterday. Thanks.
Tony Crescenzi made a point this morning that this might have had a lot to do with Countrywide’s problems yesterday. The Fed has been adding liquidity, but it wasn’t getting to the parts of the credit market that really needed it…like mortgage backed, asset backed. He suggested that Countrywide is enough of a bank that it would probably qualify to use the discount window thereby improving their ability to operate.
Creamer is a friggan genuis. If the fed listened to him two weeks ago we wouldn t be in this mess now. I think creamer should run the federal reserve. honest.
John, I was watching TV this am and futures were down about 1% across the board in light of the sell off in Asia and Europe was negative by about .25% in their session.
But as for what it was RIGHT before the announcement, I am not exactly sure.
The greatest story never told… America’s debt-addicted financial system.
From Roubini
Friday Morning Update: The Fed just announced a 50bps cut of the discount rate from 6.25% to 5.75%. Apart from the psychological effect – higher probability now of a Fed Funds cut rate and signal that the Fed cares about this financial turmoil – this cut of the discount rate is mostly cosmetic as very few banks access the discount window. More importantly, the Fed extended the normal term of lending to banks from overnight to 30 days. And the FOMC statement effectively has changed the Fed policy to an easing bias. At this point a 25bps Fed Funds cut at the September meeting is almost sure; and an inter-meeting cut is possible if financial conditions deteriorate before the September meeting.
Regarding protecting the banking system: wouldn’t it have been prudent to prevent this problem by creating the serial bubble excesses that require emergency intervention ‘to protect the banking system’? You know the answer but can you admit it? Now we have a ‘Bernanke Put’. As another thought: wasn’t it obvious that a cut was coming when Poole was campaigning for no rate cut?
Phil
The e-minis were trading at about 1419 before the announcement and exploded up to 1471 in the first 15 minutes after the announcment.
BP – If you thought CNBC soiled themselves at the Fed announcment this morning, I hope you weren’t watching at the close yesterday. Maria “Captain of the Dow Cheerleading Squad” Bartiromo actually yelped when the Dow turned positive.
At least there’s Bloomberg TV…
I heard the rumor that Bernanke called Greenspan and asked him what he would do. Then he did the opposite.
And it shall be known as the ”Poole Put” (or is it the “Gekko Put” – “I took another look. I changed my mind”). It shall expire worthless on 17 Aug 2007.
How could the Fed possibly loose more credibility than saying all is fine, then one week later saying it won’t cut and then less than two days later say all is not fine and cut? Oh, I forgot, these are the same guys who regularly have to adjust their message a couple of times via Mr. Ip and press talks as soon as the Street has read two paragraphs of its “transparent” statements. This Fed is about as transparent, explicit inflation targeting, concerned about its credibility and inflation expectations as Bush is compassionate conservative. Is the labeling on your Chinese chicken the only thing that has any truthiness to it these days………
Pardon my rant, it’s tough being a bear this morning, but at least I get paid in Euros and don’t borrow in yen. I can’t even begin to imagine the losses taken by hedgefunds (and what is not a hedgefund these days) by a 10% 2-week jump in yen vs usd.
At least there’s Bloomberg TV…
Yeah, but they keep losing their people to CNBC. Erin Burnett, Matt Nesto…I’m waiting for the next one. Dylan Ratigan actually came from Bloomberg too, I read.
Moin from Germany,
feels like this is designed for Countrywide….
Here the list of the Primary Dealers that have access to the lowered rate
BNP Paribas Securities Corp.
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co., Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Countrywide Securities Corporation
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Dresdner Kleinwort Wasserstein Securities LLC.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Lehman Brothers Inc.
Merrill Lynch Government Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International, Inc.
UBS Securities LLC.
art cashen is the smartest and most honest guy on cnbc……he said “watch the yen….watch the yen”
When the partygoers sober up, they will begin, through their hangover-induced aching brains, to realize what this action truly means.
There is no market for mortgage debt. None. The Fed has been forced into the position of temporary mortgage buyer.
And it is not the cut of rate itself that is so telling, but the extension of time to 30 days.
The mark-to-model valuations simply must be so skewed at this point in time as to cause a global financial holocaust if actually mark-to-market were forced to occur.
Actually, this Fed action is more indicative of real panic than non-action would be.
How long until the markets wake up and realize that fact?
I suspect the news stories of nervous depositors withdrawing their money from Countrywide Bank might have influenced this particular group of bankers ;)
The idea of a run on any bank probably inspires terror in the hearts of the Fed.
For those asking what the futures were before the announcement, this is a free link:
http://new.quote.com/futures/indices.action
then select the index you want to see.
Sent this AM directly to the Reserve site:
Congratulations!! Once again the Federal Government has showed its true allegiance to Corporate America by capitulating and cutting the discount rate at the Discount Window. And we’re worried about separation of church and state? Take notice that the DOW futures went from -73 to 116 or swung 189 points on the news and the oil futures market jumped over a dollar a barrel. That was all speculative money coming back into the system now that Corporate America realizes that once again, the Federal Reserve will come to their rescue by paying their bills. What’s next, a rate cut? You had the opportunity to flush out a lot of the excess that was in the system through forcing speculators and lenders to use ill gotten gains from fleecing home buyers to pay off their debts but chose not to. By cutting the discount rate you have in effect mortgaged the future of generations to come and I trust that you will be able to sleep at night because you figure that none of us will be around when the repayment of those excesses comes due. I guess injecting more than 100 billion into the system wasn’t enough. What is? The Reserve has lost all credibility but hey, Corporate America is enthralled with you and rightfully so. Thanks for doing a great job!!
Last night I saw the $ drop to ~112 range on the yen. Now its back to 113.8, without the FED statement you gotta think a significant carry trade unwind would have been in the works. This might just provide some time to make this unwind orderly.
Eating your words from just yesterday that “a fed rate cut was absurdity?”
Somebody took the cut to heart:
http://finance.yahoo.com/q/bc?s=CGW&t=5d&l=on&z=m&q=l&c=
“oh, wait, you wanted 400 shares at 23? I thought you wanted 23 shares at . . . oops”
CNBC can keep Erin Burnett. She’s awful. I realize that most financial anchors don’t know a whole lot about technicals, but she really knows nothing. Good riddance!
I’ll take Kathleen Hayes. She’s much more knowledgeable.
NEW YORK (AP) — Stocks soared Friday when the Federal Reserve did what Wall Street was clamoring for and cut its key discount rate a half percentage point. The move propelled the Dow Jones industrials up more than 150 points.
Beg, borrow or steal and buy assets. The Federal Reserve is going to make sure that they never fall in price. If they do fall, the Fed will come to the rescue and bail you out with inflation.
The key is to get into the asset first, before the whole crowd gets into the act and asset prices inflate. So look out for the next bubble.
Work is for morons. Flipping assets is the new American ethic
Its an hour and a quarter after the opening. And the Dow is up a mere three quarters of a percent – and the Naz a little more. Seems like all the Fed’s gonna end up proving is that the Emperor has no clothes.
A hard rain’s a-gonna fall.
agree with Winston although this smacks of desperation and I can’t help but notice the correlation to options expiry.
All those hold and hopers just got bailed out on their (until this morning) worthless call options.
I have added to short positions and will continue to do so.
This changes nothing…
Ciao
MS
flipping assets is better than flipping burgers
Bernanke is no Greenspan. Bernanke ka-put more likely.
Come fade away,
come fade away,
come fade away with me, you guys.
– Apologies to Styx.
wunsacon
When a similar situation occured to RE in Japan, nearly interest free money lending did not stop the deflation. We will likely begin to see divergenge here where assets depreciate and consumables costs inflate.It will be quite some time before the median wage catches up to the median home at reasonable financing terms. This is a very long way from over. How nice.
Check the charts, LA region housing prices, GDP to Housing appreciation.
http://www.housingbubblebust.com/OFHEO/Major/SoCal.html
http://www.housingbubblebust.com/Fed/GDPvsHSG.html
pardon me for repeating myself.
america has become a gamb-ling den…every investor is just a gamb-ler mumbling to himself….and hoping he will regain his losses…..and the FED has to come to their rescue because its almost like 70% of america is involved…
i would like restate that its not only america its now the whole world involved in this gamb-ling.
i feel sad that i lose my money even though i am not participating….i wish i can figure out a way to not lose money.
Yeah, the Dow has come down sharply from the morning.
Somebody took the cut to heart:
http://finance.yahoo.com/q/bc?s=CGW&t=5d&l=on&z=m&q=l&c=
“oh, wait, you wanted 400 shares at 23? I thought you wanted 23 shares at . . . oops”
The seller made out like a gangbuster.
This move more than anything us, tells us that the Fed is changing its position quickly toward the credit problems. At their last meeting they seemed far more worried about inflation, now this has come to the front burner. Stocks won’t go to the races off this news, but it certainly should help knowing that the Fed is responsive.
Peter,
Couldn’t agree with you more, but we seem to be in the minority. Maria 2.0 they are callling her…and she’s actually had some business experience…who could tell:
http://www.portfolio.com/executives/features/2007/07/09/CNBC-Erin-Burnett?TID=alsoin/maria
erin used to be on bloomie…….I’m still looking for Suzy…..
Ciao
MS
Peter:
How can I see the CNBC bit you described as: Maria “Captain of the Dow Cheerleading Squad” Bartiromo actually yelped when the Dow turned positive
Moin again,
i have to correct myself
The discount window however is available to any bank or thrift, and the terms are easier than for fed funds loans. For example, banks may submit mortgage loans, including subprime loans that aren’t impaired, as collateral, and many probably will.
I don’t know if the “Maria yelp” is on YouTube, but that’s where I’d try. I rarely am shocked by CNBC anymore, but this really surprised me.
As for the markets, I do think we’ll get a bounce at some point – purely on technicals. Even though the markets are off their opening highs, this often happens on large gap opens. As of 11:15 am EST, the indexes – and most major equities – have pulled back to their closes from yesterday, but they could bounce back again. With options expiration, this could be another fun day…
I guess welfare is OK in our free market economy when rich white folks are the recipients.
My crystal bong is prognosticating higher Q3 employment figures being reported by BLS for Financial, Real Estate, and Construction sectors
One last gasp I’m afraid. Feels like ’00 again except the economy’s downturn will be consumer led this time. Plus, Europe is slowing quickly. Not a good combo for emerging markets. Sitting in cash and waiting for value.
GREAT MINDS NOT IN ALIGNMENT
Federal Reserve Bank of St. Louis President William Poole says “only a calamity” would justify an interest rate cut. Federal Reserve Open Market Committee, including ‘Helicopter Ben,’ say let’s have an interest rate cut. Q. Does that mean we have…
Thanks, stormrunner. I read those links when you posted them yesterday. Very nice graphs.
The CNBS bobble heads are laughing at Peter Schiff. What a bunch of clowns. “Inflation is only 2%.”
My crystal bong is prognosticating higher Q3 employment figures being reported by BLS for Financial, Real Estate, and Construction sectors
Posted by: Bonghiteric | Aug 17, 2007 11:23:44 AM
___________________
You need to put some dope in that bong and get honest. Higher employment in the sectors you cite might happen as a result of deals already in the pipeline, but RE and construction employment are not the future of the economy – the mini-commercial boom will peter out as soon as small companies and start ups (hard hit recently – check the recent history) refuse to materialize to fill those spaces. Housing is a down-trend that is looking for a very deep bottom.
If anyone wants to see how bad housing will get, take a look at the figures for mortgage resets over the next year. In a word: ugly.
http://www.tradingmarkets.com/.site/stocks/commentary/gkitermi/-68323.cfm
*I think I’ll pass on holding this bag. As a retail investor, honestly, who would buy into this? Only to end up holding the loss. This is just another way for Corp. America to give it one last shot at getting out at more “reasonable” levels
*The FED is kinda stuck between a rock and a hard place… Politics always wins over realism because realism is just plain gloomy doomy shit and no one likes to deal with that
*I guess the real question for today is:
With recent market losses, how many put options are “green”? Who wouldn’t exercise them in the plus? Would it be fair to assume that on these days, the general retail investor, institutions and all alike actually end up swimming in the same direction? Like a school of fish or a flock sheeple
“One last gasp I’m afraid. Feels like ’00 again except the economy’s downturn will be consumer led this time. Plus, Europe is slowing quickly. Not a good combo for emerging markets. Sitting in cash and waiting for value.”
Lloyd, I have a slightly different goal – sitting in cash and waiting for resistance levels and areas of overhead supply.
I haven’t been to get this song out of my head for a couple weeks now…
“There must be some way out of here,” said the joker to the thief,
“There’s too much confusion, I can’t get no relief.
Businessmen, they drink my wine, plowmen dig my earth,
None of them along the line know what any of it is worth.”
I fail to see how the action of the last several weeks is supposed to convince anyone that we are in a free market and that it’s all contained.
For all those retail “investors” to see what is going on would make them run for the hills (and fill out the redemption forms) not plunge head long into a market that is not allowed to work off the excess that it produced.
I really think the redemption issue will and is alot larger than anyone is willing to admit to. Hence the dis. rate cut on an option expiry. day that also happens to coincide with a deadline to notify MF’s of intent to liquidate.
All too neat for me…
Ciao
MS
Marcus Aurelius:
You were probably not the only one on whom my sarcasm was lost.
Prior to the credit markets being the topic du jour, there were frequent posts on this site addressing the dubious computation of the BLS’ statistics.
Please pardon me while I pack another bowl, Rick Santelli is flailing all over the screen and kind of freaking me out.
Whilst all this buying is going on this morning I keep hearing this clack clack clack clack clack and the air is starting to get thin up here. My seatbelt is fastened and I don’t doubt this roller coaster will turn soon…
Bonghiteric… pack one for me too cause this afternoon will be interesting
the comments here are as one sided and emotional as a kudlow show. funny reading.
it’s lunch time on a half-day… let the selling begin
So lets see…
All over town people are gathered at houses for sale bidding up prices with multiple bids…
There are lines down at City Hall for builders wanting permits to build new homes…
Zero down homes loans are once again available to any and all (credit score no problem)…
Yep. Everythings all fixed up folks. No worries! Be happy!
Posted by: michael schumacher | Aug 17, 2007 11:56:29 AM
Marcus Aurelius:
You were probably not the only one on whom my sarcasm was lost.
Prior to the credit markets being the topic du jour, there were frequent posts on this site addressing the dubious computation of the BLS’ statistics.
Please pardon me while I pack another bowl, Rick Santelli is flailing all over the screen and kind of freaking me out.
_____________________________
Sorry for the misunderstanding. Pack one for me.
BTW: We could easily make this whole mess go away by tapping into the huge, unrealized power of the underground economy. Profit at everylevel, and everyone is happy. Really happy.
What is the over/under for how long this rally will last?
A. Hours
B. Days
C. Weeks
D. Months
E. Forever. We’re going to 36,000, baby.
Today feels just like the day earlier this summer when Scooter Libby got pardoned. You’re off the hook, Scooter! THE MAN won’t make you serve your time… THE MAN will step in to make sure things don’t get too difficult for you…
Lowering the discount rate lowers the price of borrowing, but it does not improve the quality of the borrower…[it’s] a very important political move, so the Fed is seen doing something about the situation…More importantly they are extending repos to 30 days, giving troubled parties time to figure things out and buy some time…This will not change lenders’ perception regarding Countrywide, for example. The discount rate cut prevents the patient from instant death but it does not heal,” notes William Chin of e3m investments
Giving them 30 days because they will cut the Fed Funds rate by then…er, er.
By cutting the discount rate, the Fed is trying to keep everybody happy. It won’t work. This is a clear signal that the Fed knows a lot more about just how bad things are for the big guys. This is a slow motion train wreck. This fed action is an attempt to apply the brakes and avoid the inevitable crash. It is too late. The bad loans and excessive leverage will result in financial ruin for many players. The Fed is powerless to stop it. Cutting interest rates and creating another bubble won’t work this time. Unfortunately, the guys who got rich off this mess will not be the only ones to suffer from their misdeeds. A recession is on the way. Invest accordingly.
Has everyone read the LAT article about the “run” on Countrywide banks.
http://www.latimes.com/business/la-fi-countrywide17aug17,0,5212161,full.story?coll=la-home-center
I think the Fed is just trying to keep things….uh, contained.
Jeez…I guess judging by 86 posts here, Ben Bernanke hit a nerve!
I like the scepticism, and the rising put call — last at 1.2
I think the level of fear out there such that we can have a bank run commencing on Countrywide is a much bigger story than the Fed action. If it goes Bloomberg look out below. Everyone will trample each other to death trying to get out of everything except treasuries.
The Federal Reserve will continue to accept a broad range of collateral for discount window loans”.
I have several thousand baby bibs, great fisher/price toys and some yummy catfish all from China. Do you think the Fed will hook me up at the “Window” with this collateral. BTW I market these products under the name GOLDILOCKS.
i still believe that the only way out of current mess is inflation.
FED can lower interest rate inflate things so much that debt gets reduced in half…and everyone makes more money.
and i think the whole world will eagely co-operate by not dumping the dollar.
i am seriously thinking about hedging by investing in some equties.
Hey Fred,
I appreciate your unbridled optimism and I am sure that attitude has served you well throughout life. I do, though, think at times your tendency is to oversimplify complex issues.
I just have a curiosity question: do you ever take short positions?
Don’t take that as a dig, jab, or barb. I’m just simply curious if the optimism prevails at all times.
Fred is Jack Boroudjian in drag.
The “Discount Window” term. I get the mental picture of Ben in a paper hat with the word ‘B-Fed’ on it. Sticking his head out of a burger shop order window. Hollering: “You want fries with that”
Winston…I do use hedges if that’s what you mean. I got out of my latest ones (way) too early (ouch).
I do admit that I have a positive bias…and so does the market.
All that said, my hat is off to many of the points Barry has made and TBP has flagged. I’m sure his clients are doing well.
Thank you Ben S. Bernanke, but it is no matter; Let Hercules himself do what he may, The cat will mew and dog will have his day.
Federal Reserve can not cut too far, with low unemployment and high stock market and a falling dollar.
David…i would not bet on that.
given the choice between inflation and recession….FEd will choose inflation any day. (since they dont have to actually include the real inflation in food and energy in the reports)
David I’d have to agree with techy2468.
Many economists see the “real” unemployment rate at 13-15% because the BLS numbers do not include several groups of people who are not employed. Think of the 4.6% number that the FEDs tout as the core unemployment rate. It is the same way they project the Headline & Core CPI numbers only they don’t issue a Headline Unemployment rate because it would make people freak. Just about all numbers the FED issues about the economy are spun to make it appear that things are better then YOU think which is quite sad.
So, we really don’t have low unemployment.
And as to the falling dollar, the FEDs have been debasing our currency for years AND a lower dollar is good for international U.S. corporations (their “real” employers).
Three points
1. The scenario reminds me of the S&L situation in the late 1980’s. The Fed is making moves to help those poor banks out by giving them cheaper loans.
2. As stated, “The Federal Reserve Board approved temporary changes to its primary credit discount window facility”, the Fed thinks this is a temporary situation. Perhaps, the Fed is using softer language to not sound alarming. It seems that the 1980’s S&L took a few years to recover. This subprime situation seems to be larger, more global. How clever we have become in selling debt!
3. Compare July 13, 1989 downtrend to July 17, 2007. It seems to have the same pattern
techy2468 and Pat- you could be right, time will tell. I do agree, they do hide the inflation numbers.
“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” John Maynard Keynes
I believe it is important to put into context the events.
First, last Thursday and Friday a bank run occured, causing reserves to drop below required numbers. The run was global, creating a need for central bank interventions to reinstate reserve capacities. These were done with 3-day repurchase agreements in order to stabalize the reserves and give the central banks time to examine the underlying problem and a possible solution.
The necessity continued this week. The U.S. Fed determined a continued need most likely, and thus extended the repurchase agreements to 30-day with a rollover if needed while cutting the discount rate.
These unprecedented moves by the U.S. Fed do not suggest a solution but only magnify how severe has been the problem. It appears that many, many banks cannot meet reserve requirements and demand on reserves outstrips systemic excess reserves on hand. Although initially the problem appeared as a bank run, the Fed’s actions may have tipped the scale to favor the second wave of banking problems – loan loss provisions.
This was not “the big one”; however, it surely was a wake-up call that “the big one” may be out there somewhere in parts unknown.
The surprise may not turn out to be that one major bank fails; the surprise may turn out to be that hundreds of smaller institutions fail.