Fed, Top Central Banks to flood markets with cash, page 1
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Topic started on 16-2-2008 @ 09:27 PM by DimensionalDetective

Fed, Top Central Banks to flood markets with cash


www.marketwa tch.com
WASHINGTON (MarketWatch) -- The Federal Reserve and other top central banks will flood the financial system with as much as $64 billion in extra cash in the next few weeks in an effort to unblock the jammed credit markets, the Fed announced Wednesday.
The Fed will offer tens of billions of dollars in short-term loans to banks through a new program called a "term-auction facility," in an effort to ease the credit crunch and lower key interbank-lending rates.
The Canadian and European central banks also will lend banks tens of billions of dollars through expanded programs.
Financial markets, which had been disappointed by what they saw as timidity from the Fed on Tuesday, reacted gleefully to the new plan. U.S. stocks jumped at the opening of trades, while bond prices plunged. Read Market Snapshot.
(visit the link for the full news article)



[edit on 17-2-2008 by DimensionalDetective]


reply posted on 17-2-2008 @ 04:16 AM by OBE1
I was unable to access the MarketWatch article from your lead-link DD, but I located it here: Fed, top central banks to flood markets with cash . It appears that the piece is a little outdated (December 12, 2007), and that it refers to the first series of TAF auctions that ended on January 28th.

February TAF auctions (2): $30BB was auctioned Feb 11. An additional $30BB to be auctioned on Monday Feb, 25.

The main function of the TAF, is to maintain a narrow spread between the Fed Funds Rate, and the London Interbank Offered Rate (LIBOR). Bernanke says it's possible that the Term Auction Facility will become a permanent fixture. This mechanism is designed to address the symptom (liquidity), not the cause: previous lending errors, transparency, and inter-bank trust. Until credit unfreezes, I don't see how TAF can't remain permanent. Banks still don't know how much bad debt their counter-parts hold. Every week, write-downs wash ashore like dead fish after an oil-spill...and Dollars rain from heaven. I'm pretty confident that world central banks will continue doing what they do best. Since December we've had 5 of TAF auctions, with little effect on markets.




[edit on 17-2-2008 by OBE1]
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