Fed Auctions $30 Billion

[CGowen]

By MARTIN CRUTSINGER – 1 hour ago

WASHINGTON (AP) — The Federal Reserve, seeking to combat the effects of a serious credit crisis, said Tuesday it had auctioned $30 billion in funds to commercial banks at an interest rate of 3.010 percent.

It marked the fifth in a series of auctions that so far have pumped $130 billion in money into the nation's banking system in affort to provide cash-strapped banks with extra reserves. The Fed's hope is that the increased resources will keep banks lending and prevent a severe credit squeeze from making the current economic slowdown worse.

The latest auction results showed that the Fed's effort is having success. The 3.010 percent interest rate is the lowest rate for any of the five auctions held so far. It was slightly below the previous auction where the interest rate had been 3.123 percent.

...


Federal Reserve Chairman Ben Bernanke has said that the current auction process will continue for as long as needed to make sure that banks have sufficient reserves. The new process is expected to become a permanent tool that the Fed can use in times of credit market turmoil.

...

http://ap.google.com/article/ALeqM5jC0Js_XMSCt-GDAijc3qIbjuVZIAD8UORJU82

[louis-t]

1. ...but would never think of

loaning the money at 5% to people currently paying 12% in order to keep them from losing their homes.

[Fridays Child]

2. Well, I'm relieved. I was up all night worrying about those poor, cash-strapped banks.

Oh. Wait a minute. It was the bank cash-strapping me that had me up.

Oh, well. I guess I'm in for another sleepless night.

[Angela Shelley]

3. Why auctions? ... to keep the process anonymous, so that

bank customers and investors "will not know" which banks are having the largest problems.

[Celebration]

4. This really is like magic, isn't it?

The fed can just auction any amount of money that it wants. And that money comes out of thin air.

I don't think anything like this has ever been done.

Soon it will be time to look at that chart on bank reserves again. They just invented a new way to get around bank reserve requirements. Haha.

[CGowen]

5. I think the Fed just takes all the garbage as collateral, like the securities the banks can't sell

on the market.

If they sold them, they would establish a market price, maybe cents on the dollar.
Instead they pretend it's still worth everything and they borrow from the Fed anonymously through the TAF and the Fed takes the paper and gives them money.

Magic indeed...and they mention in the article that they want to make this a permanent tool.



That's how I see it.

[Celebration]

6. "extra" reserves

That's the phrase that got me. It makes it sound like they had enough before the auction, but they just wanted some "extra."