Hair of the dog
The Fed is throwing a party, but it is not a feel-good kind of affair. It is the hair of the dog on the morning after the New Year’s Party. The Fed just announced another emergency liquidity measure. The Federal Reserve Primary Dealer Credit Facility (“PDCF”) is an overnight loan facility that provides funding to primary dealers. It is a supplement to the facility to the $200 billion facility announced the other day — and it might be even larger. No size for the new credit facility was announced. Here are some of the terms:
Primary dealers may secure loans under the PDCF with all collateral eligible for pledge in open market operations, plus investment grade corporate securities, municipal securities, mortgage-backed securities, and asset-backed securities. No non-priced collateral will be eligible for pledge under the PDCF.
The facts that this facility was unanimously approved by the board, that it is of indeterminate size, that it will take most kinds of investment grade security as collateral, and that it extends loans for 90 days or more, all suggest that the Fed is expecting further potential runs on banks — following in the wake of the Bear Stearns shocking merger price — and is putting in place mechanisms to deal with those. We shall see whether the market’s psychological response to these new, aggressive moves is positive or negative.
March 17th, 2008 at 1:34 am
We shall see whether the market’s psychological response to these new, aggressive moves is positive or negative.
Futures on the S&P500 and Dow were down about 2%. They might be recovering slightly but are still down significantly as I type.
The situation is too serious for playing the blame game, but I’m pretty sure where the buck will stop after, hopefully, we get through this. (Hint: it won’t be at the Democratic Congress.)
Last year I commented:
Even if Paulson and Bernanke bring us through, I wonder if the Europeans and Asians, with OPEC concurrence, will form their own ratings agencies without whose blessing no American instrument will be acceptable in global financial markets.
March 17th, 2008 at 3:53 am
In view of Larry Kudlow’s track record in recent months, it’s worrisome that he isn’t worried.