Thread: Fed Pumps Further $630 Billion Into Financial System (Update

Fed Pumps Further $630 Billion Into Financial System (Update3)

By Scott Lanman and Craig Torres

Sept. 29 (Bloomberg) -- The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

``Today's blast of term liquidity will settle the funding markets down, and allow trust to slowly be restored between borrowers and lenders,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. On the other hand, ``the Fed's balance sheet is about to explode.''

The MSCI World Index of stocks in 23 developed markets sank 6 percent, the most since its creation in 1970. Credit markets deteriorated further as authorities tried to save more financial institutions from collapse.

European Rescue

European governments have rescued four banks in two days and the Federal Deposit Insurance Corp. said today it helped Citigroup Inc. buy the banking operations of Wachovia Corp. after its shares collapsed. The Standard & Poor's 500 Index fell 3.8 percent and the cost of borrowing dollars for three months rose to the highest since January. The rate for euros hit a record.

``If people think the authorities may give in to fears, they are wrong,'' Financial Stability Forum Chairman Mario Draghi said today in Amsterdam, where the international group of regulators and finance officials is meeting. ``There is willingness and determination on winning the battle to restore confidence and stability.''

Banks and brokers have slowed lending as they struggle to restore their capital after $586 billion in credit losses and writedowns since the mortgage crisis began a year ago. The bankruptcy of Lehman Brothers Holdings Inc. also sparked fears among banks they wouldn't be repaid by counterparties, driving up the cost of short-term loans between banks.

Funding Risk

``By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk,'' the central bank said.

The Bank of England and the ECB will each double the size of their dollar swap facilities with the Fed to as much as $80 billion and $240 billion, respectively. The Swiss National Bank and the Bank of Japan will also double their dollar swap lines, while the central banks in Australia, Norway, Sweden, Denmark and Canada tripled theirs.

All the banks extended their facilities until the end of April 2009.

The Fed is also increasing the size of its three 84-day TAF sales to $75 billion apiece, from $25 billion. That means the Fed will make a total of $225 billion available in 84-day loans. The central bank will keep the sales of 28-day credit at $75 billion.

Special Sales

In addition, the Fed will hold two special TAF sales in November totaling $150 billion so banks can have funding available for one or two weeks over year-end. The exact timing and terms will be determined later, the Fed said. The TAF program began in December, totaling $40 billion.

The bank-rescue plan being debated by Congress today would give the Fed more power over short-term interest rates by providing authority as of Oct. 1 to pay interest on reserves held at the central bank by financial institutions. That would make it easier for the Fed to pump funds into the banking system.

Paying interest on reserves puts a ``floor'' under the traded overnight rate, which would allow a central bank ``to provide liquidity during times of stress'' without affecting the rate, New York Fed economists said in a paper last month.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.netCraig Torres in Washington at ctorres3@bloomberg.net.

So why do they need our money when they can just print it up anyway? Everytime they print more money it devalues the dollar. I know nothing about economics and I understand this principal. What kind of idiots run this federal reserve bank?

I don't understand this.

Did the Federal Reserve just do what Congress refused to do?

Can anyone answer that for me?

W

Originally Posted by ALIPAC

I don't understand this.

Did the Federal Reserve just do what Congress refused to do?

Can anyone answer that for me?

W

I think this was their Plan B, it has somewhat the same effect the bailout would have by keeping lines of credit going. And we will get to pay for it through inflation.

Read the 3rd paragraph again. The FED did this BEFORE the failed vote. I think this was intended to be in addition to the 700 BILLION bailout.

This is a bottomless pit of debt. Credit NEEDS to tighten up so that only those who can pay back get the loans. There must be no more subprime loans! Stop credit card companies from targeting college kids. Stop home loans with no money down or interest only payments.
American taxpayers did not create or profit from this reckless credit giveaway. American taxpayers should not have to eat the bad loans.

Does anyone know if the 600 billion the Federal Reserve is pumping out will add to the national debt owed by taxpayers. Is that money guaranteed by the full faith and credit of the American taxpayers? Is that money borrowed, generated by Treasury bills? Or is it printed?

Where is the money the Reserve is putting out coming from and who has to pay it?

W

Here is some more commentary on this 630 billion.

Fed to Congress: We’ll Just Print 630 billion dollars K? Thx Bye.

By: Ian Welsh Monday September 29, 2008 4:19 pm

Dropping this stuff out of helicopters

Looks like the Fed doesn't much care what Congress does

The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

This dovetails with something I've been saying for a long time. In essence Bernanke can print as much money as he wants, so the idea that Hank had to have 700 billion NOW always seemed a bit strange to me. If Congress didn't give Paulson the money, Bernanke could always just make it.

Mind you, apparently Bernanke did this before the final vote. I wonder if he knew at that point that it was going to fail and was trying to get ahead of the curve, or if he really thought the bailout would cause 630 billion worth of turmoil. Not much of a vote of confidence.

Real world effect? The inflation which was beginning to die down will get boosted back up. Gas prices were dropping. Not so much now. This completely blows the Fed's balance sheet out of the water, they are now past the 800 billion dollars they had (since that already spent over 500 billion). That puts it clearly into the "running the presses hot" stage. And as any conservative Chicago School economist can tell you, when you do that, inflation!

Helicopter Ben Bernanke has proved what he deserves his name. This is indeed the equivalent of dropping money from helicopters. Since the one thing everyone agrees is that this isn't a liquidity crisis, it won't solve the problem. But it may soothe the waters for a time. 630 billion is a LOT of money.

http://firedoglake.com/2008/09/29/fed-t ... k-thx-bye/

Ephesians 4:32

Here is a comment at this site.

WELL, I guess the one day delay just raised the stakes. Now instead of just a 700 billion dollar bail out, we will approve 700b for the treasury on top of the 630b from the fed. Plus 85 billion plus 300 billion plus plus plus. Good to know that we are good for all this credit and plan to pay it back!

http://socialize.morningstar.com/NewSoc ... 68545.aspx

Here is another at this site in regards to the 630 billion.

Today the Federal Reserve injected a total of 630 billion dollars in the financial system in an effort to alleviate the lack of liquidity.

So while Congress is fighting back and forth over this bail out plan (or rescue plan, depending on which spinster you talk to), two miles away the Federal Reserve found 630 billion dollars and threw it into the market.

Odd how this story is being so widely ignored while the crash and burn of the 700 billion bailout makes the headlines. Is this 630 billion not as important as the other 700 billion? The 630 billion wasn’t here this morning – it’s being printed on high powered color printers as we speak.

No vote, no debate. Now we know who’s really running the Country.

http://blog.ewdc.net/2008/09/other-630-billion.html

These may shed some light.

Ephesians 4:32