E-MAIL THIS LINK
To: 

Fed Takes Steps to Ease Crisis
WASHINGTON (AP) -- The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy. The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created a lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms on Monday.

"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.

"It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown," Richard Yamarone, an economist at Argus Research, said Sunday evening.
And that's the point: while we can grouse over people with preserved golden parachutes and the hinky hedge dealings, a meltdown nails all of us.
The new lending facility -- described as a cousin to the Fed's emergency lending "discount window" for banks -- is geared to give major investment houses a source of short-term cash on a regular basis -- if they need it. It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the overnight loans.

"This is the Fed as the Yucca Mountain of securitized debt, but it is no doubt necessary," said Terry Connelly, dean of Golden Gate University's Ageno School of Business, referring to the government's underground dump in Nevada for nuclear waste.

Treasury Secretary Henry Paulson said he was pleased by Sunday's developments. "Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets," he said.

"We appreciate the actions taken by the Federal Reserve this evening," said White House press secretary Dana Perino. "Secretary Paulson and Chairman Bernanke are actively engaged in addressing issues affecting our financial markets. Secretary Paulson has kept the president briefed on recent developments."

The "discount" rate cut announced Sunday applies only to the short-term loans that financial institutions get directly from the Federal Reserve. It doesn't apply to individual borrowers.

The Fed's actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street. And, the action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered. That key rate is now at 3 percent and is expected to be cut by at least one-half percentage point on Tuesday. Analysts said the Fed's new steps may lessen pressure for a super-sized cut to that rate.

The Fed said in a statement that the steps are "designed to bolster market liquidity and promote orderly market functioning ... essential for the promotion of economic growth."
Posted by: Steve White 2008-03-17
http://www.rantburg.com/poparticle.php?ID=233905