Fed drops discount rates, opens lending to primary dealers

Posted Mar 16th 2008 8:39PM by Douglas McIntyre
Filed under: Federal Reserve

The Federal Reserve Board unanimously approved a request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3-1/4 percent. The Board also approved an increase in the maximum maturity of primary credit loans to 90 days from 30 days

The board also authorized "the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities." This may mean that the Fed will be exchanging capital for paper worth much less than a dollar being currently held on bank balance sheet.

The moves by the board are now a full bail-out and the only open question is how much money the agency will provide.

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Reader Comments (Page 1 of 1)

3-16-2008 @ 11:18PM

Bill Madison said...

I previously tried to advise the FEDS that we were headed for BIG problems. The same problems Japan had 15 years ago when they lowered the rates to 1 quarter of one percent. The current problem was caused by: (1) the Feds repeated hiking of the interest rate without checking with the Banking Community, (2) Banks not holding the line on GOOD business practices(My first home purchase loan was based on a maximum of 2& 1/2 times annual earnings and 20% down.

3-17-2008 @ 2:13AM

thebigkill said...

Once again, I defer to the wisdom of the Omaha Oracle from his annual letter to investors in 2002: "Derivatives are financial weapons of mass destruction."

He also mentioned, in 2002, the rapidly growing trade in derivatives poses a "mega-catastrophic risk" for the economy and most shares are still "too expensive."

All stocks today are trading at inflated P/E's. If one looked at a chart for derivatives contracts, the parabolic rise is even stronger than any other bubble I've ever seen.

http://news.bbc.co.uk/2/hi/business/2817995.stm