Fed Raises Emergency Auctions to $75 Billion to Counter Liquidity Shortage

[Purveyor]

Source: Bloomberg News

May 2 (Bloomberg) -- The Federal Reserve, seeking to prevent a deeper economic slowdown, took another stab at coaxing banks into lending at lower rates.

The Fed boosted its biweekly Term Auction Facility sales of cash to banks by 50 percent to $75 billion and expanded the collateral it takes from bond dealers through loans of Treasury securities. It also raised the amount of dollars it makes available to the European Central Bank and Swiss National Bank through swap lines to a combined $62 billion from $36 billion.

Borrowing costs for banks have risen as much as 0.38 percentage point in the past six weeks, an increase that blunted the impact of the cash injections that began in December. The strains threatened to further impair mortgage markets, worsening an economy where growth has already stalled.

``The world is awash in liquidity, it just isn't reaching the right financial borrowers,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``Today's action from the central banks is another strong dose of medicine that will help cure what ails the credit markets.''

Fed officials also expanded the collateral they accept under the Term Securities Lending Facility to include AAA rated asset- backed investments. About 95 percent of outstanding student-loan securities are AAA, according to the American Securitization Forum. Democrats in Congress had pushed Chairman Ben S. Bernanke to take student-loan bonds on the central bank's balance sheet.



Read more: http://www.bloomberg.com/apps/news?pid=20601068&sid=aSsExY4o_fhM&refer=home

[Cassandra]

1. Money is cheap...

trust is dear.

[aquart]

2. Prices shoot higher everytime they cut the rates.

This is the nightmare of stagflation and none of their idiotic, misconceived "policies" can cope with it.

[PSPS]

3. "expanded the collateral it takes from bond dealers through loans of Treasury securities"

The Fed boosted its biweekly Term Auction Facility sales of cash to banks by 50 percent to $75 billion and expanded the collateral it takes from bond dealers through loans of Treasury securities.

In other words, we taxpayers are bailing out even more of the worthless fraudulent "mortgages."

[mcollier]

4. Must be nice for those banks to get all that free money

$1.2 Trillion in 9 months... Wow... Wake Up America.... We are being robbed... in broad daylight...

[Demeter]

6. Now It's Credit Card and Car Loans, too!

[salin]

5. "Gee, the banks/financial institutions are just keeping

the discounted money and still making loans at high interest rates ... so lets "solve" the problem by giving the financial institutions... more discounted money".

Idiots.

How about placing some strings on that money - you know sort of like the old idea of "targetted tax breaks" - where the financial incentive is only recieved in return for some sort of investment that is deemed to serve the social good.

[ooglymoogly]

7. Printing more paper is the best way to solve all of Bu$hes nightmares.

....IN THE SHORT RUN!!!!.....with no thought or care for tomorrow or a rainy day. But with the magic of the printing press it never rains in Bu$hworld.

[roamer65]

8. Nitwit has created a monetary inflation crisis worse than when Nixon...

took us off the gold exchange standard in August, 1971. We recently passed the M3 money supply growth figures that Nixon and his Fed Chief Arthur Burns achieved in the early 1970's. The Nitwit continues to break records, even Nixon's.

[formercia]

9. The banks have to pay it back

I suspect a lot of these dollars go into the carry trade, thus never reaching the borrower on the street.

With interest this low, the Dollar beats the Yen in currency speculation.