Open market operations by the Fed

p. 468 The Fed buys and sells securities in the open market: 1) What are the criteria of the securities than can be bought / sold? 2) How does the bargaining mechanism work between the Fed and a commercial bank? What is the incentive to buy / sell for a commercial bank? Can it be that the Fed wants to buy securities but there is no commercial bank willing to sell? Thanks Andreas

  1. Usually treasuries. Sometimes, the Fed might buy other things, like mortgage-backed securities. This latter part is more of a response to extraordinary circumstances though. 2) It’s the magic of the free market. At any given time, there are buyers and sellers of treasuries (or whatever other liquid security). If the Fed wants to buy something, they just place a bid that is higher than the current bid, or lift the current offer. Naturally, this affects prices, which is usually their intention.

the incentive to buy for banks is free money at basically 0% right now!!! If banks think they can’t do anything w/ that cash they get from the Fed then they may be less willing to sell…think 2008…lending markets dry up, fed wants to pump money into the banks, but they don’t want to lend it out anyway…someone correct me if I’m wrong.

Which bank is not lending money? I can get a 30-year mortgage for less than 4%.

i said in 2008 ohai

Sorry, Andrew. I misread your post since it was so horrible overall.

haha are you serious you douche?