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The Fed is taking another step to help the markets.
This morning, the central bank announced further measures to address the liquidity problems facing financial institutions caught up in the mortgage mess. The Fed said it will lend up to $200 billion to securities dealers for periods as long as four weeks, rather than overnight, which is the current policy.
The bank's Open Market Committee also authorized increases in its commitment of dollars to the European Central Bank and the Swiss National Bank. The increases will be $10 billion and $2 billion respectively. That action, too, is designed to combat pressures related to mortgage problems.
Release Date: March 11, 2008
Since the coordinated actions taken in December 2007, the G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in funding markets. Pressures in some of these markets have recently increased again. We all continue to work together and will take appropriate steps to address those liquidity pressures.
To that end, today the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing specific measures.
Federal Reserve Actions
The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS....
After the Fed's announcement, traders pared bets policy makers will cut the benchmark lending rate by three-quarters of a percentage point on March 18. Interest-rate futures on the Chicago Board of Trade showed a 70 percent chance of a 75 basis point cut, compared with 90 percent odds earlier today and 86 percent odds yesterday. The odds of a 1 percentage point cut fell to zero, from 14 percent yesterday.
The rally on Wall Street ran out of gas Wednesday as oil prices jumped past $110 a barrel and enthusiasm for the Federal Reserve's liquidity plan faded.
The S&P 500 index lost nearly 1 percent, while the Dow Jones Industrial Average and Nasdaq lost about half a percent. All three major indexes have declined in four of the past five sessions.
THE Iraq war has cost the US 50-60 times more than the Bush administration predicted and was a central cause of the sub-prime banking crisis threatening the world economy, according to Nobel Prize-winning economist Joseph Stiglitz.
The former World Bank vice-president yesterday said the war had, so far, cost the US something like $US3trillion ($3.3 trillion) compared with the $US50-$US60-billion predicted in 2003.
The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit.
"The regulators were looking the other way and money was being lent to anybody this side of a life-support system," he said.
That led to a housing bubble and a consumption boom, and the fallout was plunging the US economy into recession and saddling the next US president with the biggest budget deficit in history, he said.
ONE OF BRITAIN'S largest unions condemned as "obscene" yesterday a report by business leaders which claimed the economy would benefit from a short war with Iraq.
John Edmonds, general secretary of the giant GMB union, attacked the study by the Institute of Directors (IoD), which said a short war would end damaging uncertainty in the stock markets.
But the report warned that a prolonged conflict, cuts in oil production and diplomatic crises for the West would have severe economic consequences.