A couple questions regarding the Fed: When you hear that the Fed is going to cut rates, the applies to the discount rate but the cut in rates is most evident in the Fed Funds rate which cutting the discount rates seems to affect…correct? Banks have always been able to borrow directly from the Fed but haven’t done so in the past as it has a negative stigma…correct? When have banks borrowed from the Fed in the past?
LEH and GS just did.
Now they are borrowing from the Fed because it’s the ony thing to do with that “collateral”. They wouldn’t be borrowing from the Fed if they were holding T-notes. The Fed also cuts its target Fed Funds ratet which means that it is going to conduct open market operation to attempt to maintain the Fed unds rate at its target. There are several new programs that allow banks to borrow in ways they wouldn’t have been able to previously, using crappy collateral, potentially laying a hge turd on the American taxpayers.
My question is when will fed stop? Every time i want to short the market fed comes to the rescue. Not much resources left though.
CSK, for what it’s worth I’d say they’re done, maybe another 25 bps.
I don’t thinbk they’re done because Bernanke doesn’t seem like the type who will just shrug and say “we’ve done all we can do”. There’s lots of pain out there and the Fed seems to think that if we diffuse it and delay it, things will be better. There’s lots of ways they can do that. They can: a) Set up refinancing facilities for banks for home loans in or near default b) Offer longer-term lending on ever crappier collateral c) Lower reserve requirements and pressure banks to lend more money d) Expand the universe of people who can borrow at the discount window e) Actually purchase some of these illiquid structured products and thus offer mark-to-market prices on all of it f) Pressure the accounting board to change accounting rules to accommodate fraudulent or irresponsible corporate practices etc, etc… And by the time we’re done we’ll have a ten-year mess to clean up. Sigh.
Joey that doesnt look too good… no wonder a lot of people are moving to HK and LN
I don’t know - I’m kind of looking forward to buying a Ferrari by borrowing interest free money at the discount window and thus doing my part to stimulate the economy.
JoeyDVivre Wrote: ------------------------------------------------------- > I don’t know - I’m kind of looking forward to > buying a Ferrari by borrowing interest free money > at the discount window and thus doing my part to > stimulate the economy. Joey, the trouble seems to be that the only people getting to borrow at these ridiculous rates are the banks, interest rates for everything else are staying the same or even going up (I wonder why)
Probably has to do with higher expected inflation.
CFA_Halifax Wrote: ------------------------------------------------------- > JoeyDVivre Wrote: > -------------------------------------------------- > ----- > > I don’t know - I’m kind of looking forward to > > buying a Ferrari by borrowing interest free > money > > at the discount window and thus doing my part > to > > stimulate the economy. > > Joey, the trouble seems to be that the only > people getting to borrow at these ridiculous rates > are the banks, interest rates for everything else > are staying the same or even going up (I wonder > why) This is because spreads are widening. Capital is in short supply so banks are charging higher spreads.
The rates on my municipal auction bonds are coming down … The first week I was getting 6% and 10%, this is the third week they have reset for me and I’m getting 9%, 7.2% and 5% (I added another issue last week). The volume is going up so I’m guessing the rates will trend down. When(if) they return to normal, I’m guessing the liquidity crisis will be over. An investment bank can borrow at 2-3% from the fed and buy these bonds and get 7-9% (tax free).
TMurf Wrote: ------------------------------------------------------- > CFA_Halifax Wrote: > -------------------------------------------------- > ----- > > JoeyDVivre Wrote: > > > -------------------------------------------------- > > > ----- > > > I don’t know - I’m kind of looking forward to > > > buying a Ferrari by borrowing interest free > > money > > > at the discount window and thus doing my part > > to > > > stimulate the economy. > > > > Joey, the trouble seems to be that the only > > people getting to borrow at these ridiculous > rates > > are the banks, interest rates for everything > else > > are staying the same or even going up (I wonder > > why) > > > This is because spreads are widening. Capital is > in short supply so banks are charging higher > spreads. Bingo. Long story short, real rates aren’t decreasing for most people, only the banks. The inflation doesn’t help.