Well, the U.S. Federal Reserve 'leads the league in creating facilities.' The Fed Tuesday said it will help finance the purchase of assets from money-market mutual funds hurt by redemptions from investors fleeing to safer investments, such as U.S. government bonds.
Fed focuses on money market liquidity
The Fed has created a Money Market Investor Funding Facility (MMIFF), "which will support a private-sector initiative designed to provide liquidity to U.S. money market investors," the Fed announced Tuesday.
Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly rated financial institutions and having remaining maturities of 90 days or less, the Fed said. Eligible investors will include U.S. money market mutual funds and over time may include other U.S. money market investors.
JP Morgan Chase (NYSE: JPM) will administer the five special units that will buy certificates of deposit, bank notes, and commercial paper with a remaining maturity of 90 days or less, Bloomberg News reported Tuesday. The Fed will make up to $540 billion available for purchases.
Economist David H. Wang told BloggingStocks Tuesday this latest facility "should further increase liquidity."
"This is a financial crisis that has required the Fed to try unconventional tools, to think 'outside the box,' and the money market facility is consistent in that regard," Wang said. "We are seeing redemptions of money market deposits by hedge funds and money market funds' inability to sell back at par the commercial paper they bought, so the Fed's facility should increase liquidity for money market funds."
Concerning consumer protection, Wang said the U.S. Treasury already guarantees money market funds against losses, establishing a $50 billion fund for that purpose in September.
An alphabet soup of facilities
The MMIFF joins other facilities established by the Fed: the Commercial Paper Funding Facility (CPFF) and the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF). Earlier, the Fed established the Term Auction Facility (TAF), and the Term Securities Lending Facility (TSLF).
Monetary Policy & Economic Analysis: As economist Wang noted, the new facility should lower tension levels in the short-term debt market. It should allay concerns that certain money market funds may not have adequate liquidity to fund withdrawals, if another bank fails and/or another stressor event hits the markets. Wang added that he doesn't expect the Fed to use all of the $540 billion designated for the MMIFF facility.
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Reader Comments (Page 1 of 1)
10-21-2008 @ 1:19PM
jeff said...
Yayyy more govt intervention!
Don't forget their big plans for another stimulus package. Just what we need right now: http://www.greenfaucet.com/economy/the-shortcomings-of-a-second-stimulus-package/98199
Shouldn't be trying to save money right now so that we can some day rescue our dollar? Or are we just giving up!?