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Fed Increases the Term Auction Facility

The Fed raises the amount on offer for the TAF from $30 billion to $50 billion, bringing the size of the facility to $100 billion.

The stock market took cheer briefly, but as of this writing, the Dow has retreated back into negative territory.

From Bloomberg:

The Federal Reserve plans to increase its loans to banks this month to offset a deepening credit crisis threatening to tip the U.S. economy into a recession.

The central bank increased to $50 billion each from $30 billion the amount intended for auctions of funds planned for March 10 and March 24. The Fed also said in a statement in Washington today that it will make $100 billion available through weekly 28-day repurchase agreements, where the central bank lends cash in return for assets such as Treasuries.

The decision is the central bank’s latest attempt to reduce the threat to the economy from banks curtailing loans to companies and households. Banks and securities firms have posted losses exceeding $181 billion since the start of last year as the impact of surging defaults on subprime mortgages rippled through world financial markets.

“Given what we have seen in terms of illiquidity in the financial markets in the last four or five days, this came right in time,” Ajay Rajadhyaksha, head of fixed income strategy at Barclays Capital in New York, said in an interview with Bloomberg Television…..

Fed officials said today’s announcement wasn’t related to the Labor Department’s jobs report, and was aimed at addressing the deterioration in credit markets. The officials, speaking on condition of anonymity in a conference call with reporters, also said the measures won’t expand the Fed’s balance sheet…..

Officials said they will keep the benchmark federal funds rate target around the level set by the FOMC, indicating they don’t plan for the liquidity measures to drive the rate lower

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8 comments

  1. Anonymous

    It seems to me that TAF buys the investment banks time to deleverage/unwind in an orderly fashion so as to prevent a race to exits… thus, the bag holder ends up being John and Jane, via pension funds, 401Ks, IRAs, or anyone blind enough to buy equities as they trend lower. In summary: DISTRIBUTION AT WORK.

  2. s

    well said…if the broker calls telling you this is a once in a lifetime oppt look at C, BSC, ML, the entire retail complex. Just when you thought they couldn;t go lower, they do.

    As an aside for a laugh check out Mishkins speech on currency and inflation great so you destroy the dollar but no inflation – makes sense to me

  3. Anonymous

    How will this impact tings??

    Yves,

    Are you aware of this: Poole is an influential Fed official who voted against the central bank’s emergency rate cut of three quarters of a percentage point on January 22. He does not currently sit on the rate-setting Federal Open Market Committee, however, and he is retiring from the Fed shortly after next month’s meeting.

  4. Anonymous

    Kansas City Federal Reserve Bank President Thomas Hoenig on Friday warned that excessive cuts to interest rates risked fueling inflation and creating fresh asset bubbles.
    The Fed has already “significantly” lowered rates, Hoenig said in a speech to the Institute of International Finance meeting in Rio de Janeiro.

  5. Anonymous

    Fed bank presidents saying rate cuts are over, while Ben and Warsh are behind doors cutting deals for the next cut?

  6. Anonymous

    Right on about pension funds! That is the next smoking shoe to drop. I have suggested to friends they either call the fund managers or make damn sure they order prospectus, if they are not in that habit! You have to let these little clowns know that you are watching and concerned and not idiots. Just look at any money market with repos and derivaties, many money markets have become very unsafe and these people that trade these instruments fro credit enhancement have to become hyper-paranoid with your cash!!! You have to become involved and make calls and make them aware you exist and that you are pissed and watching them!!!!!!

  7. Anonymous

    To be characterized as someone who has something to hide rankles me,” said Ken Heredia, a retired firefighter and vice chairman of the public safety pension plan board.
    The dispute originated with a September 2006 audit of city-issued credit cards that questioned some retirement department travel expenses, including a staffer’s $400 “limousine” ride from an airport to a hotel.
    Trustees and department staff felt the portrayal of wasteful spending was unfair. The $400 ride, they said, was in a sedan, and the driver waited for hours to pick up a female staffer whose plane arrived late.
    The boards have said an additional travel audit would be burdensome at a time when the department’s new director, Russell Crosby, has called for a top-to-bottom review of operations.
    Crosby said that in the fiscal year ending last June, total travel expenses for the $2.7 billion police and firefighter pension fund was a relatively small $61,000. Travel expenses for the $1.9 billion other fund were $32,000, he said. The director added that San Jose is “at the low end of what pension funds spend for administration.”

    http://www.mercurynews.com/politics/ci_8486582

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