reply to post by o22a6ar
Here is the jist from the CNN website explaining the extra money they are going to be pushing, it's not quiet what they said on CNN but here is what
actually is happening
NEW YORK (CNNMoney.com) -- The Federal Reserve announced Monday that it will increase by hundreds of billions of dollars the money it makes available
to the nation's banks.
The central bank said that its so-called term auction facility, which accepts financial instruments such as mortgage-backed securities as collateral,
will be doubled immediately to $300 billion. The total amount available to banks will rise to $600 billion under the moves announced Monday.
In addition, the Fed signaled it could increase the amount available through those loans to $900 billion by the end of the year, increasing the amount
the Fed will loan through the program by $750 billion above its previous limit.
The moves come in the wake of the passage on Friday of a $700 billion bailout bill that will allow Treasury to buy damaged assets directly from banks
and Wall Street firms.
Experts said the moves by the Fed were an acknowledgement that many of the nation's leading financial institutions may not be able to wait until
Treasury sets up its program. It may take weeks or perhaps even months before the Treasury can pump billions into the system itself by buying the
damaged assets held on their balance sheets.
"The crisis in credit markets has become very acute, not just here but in Europe as well," said Lyle Gramley, a former Fed governor who is now an
economist with the Stanford Group. "In a situation like this, you have to provide all the liquidity that is needed so that illiquid institutions
don't become insolvent institutions."
The rapid expansion of the Fed program is essentially like an emergency bridge loan for institutions caught in a credit squeeze, said Kevin Giddis,
head of fixed-income sales trading and research for investment firm Morgan Keegan.
The Fed had little choice but to try to pump as much cash as possible into the system, no matter the risks associated with taking damaged assets as
collateral, Giddis said.
"Liquidity is needed immediately, and we're talking hours," he said. "I think the Fed will continue to take whatever steps it can until we unlock
Giddis and Gramley both agree that the Fed appears to be focused on these kinds of non-traditional measures to pump cash into the market rather than
simply cutting interest rates, which is how the central bank has historically spurred a slowing economy. But neither would rule out the possibility
that the Fed will do an emergency rate cut before its Oct. 28 and 29 meeting if problems in credit markets continue to worsen.
The term auction facility was announced in December as a move to pump cash into the already battered credit markets. The Fed allows banks to bid in an
auction for the rate they're willing to pay to borrow the funds, and it accepts a much wider range of collateral for the loans than in other forms of
lending by the central bank.
The Fed started loaning $20 billion in its first auction in December, but it quickly reached a $150 billion limit by late May and has stayed at or
near that level since then.
The auctions are split between different length loans. The Fed's statement Monday said it doubling both its 28-day and 84-day auctions to $150
billion each immediately. The Fed conducted a previously scheduled 84-day auction Monday morning for $150 billion of funds. That was originally set to
be a $75 billion auction before Monday's announcement
[edit on 10/6/0808 by Trayen11]