Thread: Investment firms tap Fed for billions

Investment firms tap Fed for billions

Wall Street banks take advantage of Fed's emergency loan program, borrowing an average of $38.1 billion a day last week.

Last Updated: April 3, 2008: 6:26 PM EDT

WASHINGTON (AP) -- Big Wall Street investment companies are stepping up their borrowing a bit from the Federal Reserve's unprecedented emergency lending program.

The Federal Reserve reported Thursday that those firms averaged $38.1 billion in daily borrowing over the past week from the new lending program. That compared with $32.9 billion in the previous week and $13.4 billion in the first week the lending facility opened.

The program, which began on March 17, is part of the Fed's effort to aid the financial system.

The Fed, for the first time, agreed to let big investment houses temporarily get emergency loans directly from the central bank. This mechanism, similar to one available for commercial banks for years, will continue for at least six months. It was the broadest use of the Fed's lending authority since the 1930s.

Fed Chairman Ben Bernanke and his colleagues opened the facility as it raced to deal with the sudden crash of the venerable Wall Street firm Bear Stearns (BSC, Fortune 500), which was on the brink of bankruptcy. Fearful that other investment firms could be in jeopardy given the intense fear that gripped the markets at that time, the Fed moved to give investment firms a place to go for overnight cash loans.

Doing this was "a very substantial step," Bernanke told lawmakers at a Senate Banking Committee hearing on Thursday. "We didn't take it lightly."

The lending facility is seen as similar to the Fed's "discount window" for commercial banks, where the Fed acts as a lender of last resort. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans from the Fed.

Banks also stepped up their borrowing from the Fed's discount window. Banks averaged $7 billion in daily borrowing for the week ending April 2. That compared with $550 million in average daily borrowing for the previous week.

The identities of commercial banks and investment houses borrowing from the Fed's emergency lending facilities are not released.

The Fed's decision to extend emergency lending to investment houses -- along with another controversial move -- backing a multibillion lifeline as part of JP Morgan's (JPM, Fortune 500) deal to take over the troubled Bear Stearns -- were under scrutiny by the Senate Banking Committee on Thursday. Some Democrats and others worry that the moves could put billions of taxpayer dollars at potential risk.

Bernanke, however, defended the actions, saying they were necessary to avert a meltdown of the entire financial system, which would have dire consequences for the economy and for millions of Americans.

"Our ultimate concern is the health of the American economy and the average person," he said.

Also Thursday, the Fed, in the second operation of its kind, auctioned another $25 billion of much-in-demand Treasury securities to investment firms. Bidders paid an interest rate of 0.160 percent. The Fed received bids of $46.9 billion worth of the securities. Bidders, who are not identified, can put up risky home loan packages as collateral.

That program is intended to help financial institutions and the troubled mortgage market. The Fed said it would make as much as $200 billion worth of Treasuries available through weekly auctions that started last Thursday.

The goal is to make investment houses more inclined to lend to each other. It also is aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities have driven up mortgage rates, aggravating the housing crisis.

First Published: April 3, 2008: 5:08 PM EDT

http://money.cnn.com/2008/04/03/news/ec ... /index.htm

AirBourne,
Thanks for the good post you've been posting about the feds lately.

I was watching C-Span this morning when they had one of BUSH's big trade reps on talking about Free Trade with Columbia and other countries.

There were alot of people calling in and complaining about it and to my surprise just about every call but one was talking about how everyone knows about the plan for a global government agenda and the CFR agenda. It was a golden moment.

After taking everyones wrath the rep was saying "We're not going to bring down America's standard of living, we are going to bring the other countries standards up to ours."

Oh, that made me hot! I tried to call in but all line were busy.
I wanted to tell him "Well, have you looked around lately? Our standard of living isn't going up, its way down and the financail markets are in ruin!" I sure would have liked to hear his rebuttal to that. The guy sounded totally brainwashed like this was America of 10 years ago.

He said "I know alot of people think the government has a plan or an agenda with the NAU and a new currency and ect, and it just isn't true!"
Seems like he needed a reality check!