Fed, ECB, Bank of Japan, Others Offer $247 Billion; Money Market Rates Ease

Large central bank interventions continued today, and while the moves alleviated stress in the money markets, three month rates remain elevated, a sign of continued lack of confidence. From Bloomberg:

The Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the 1920s.

The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer from $67 billion “to address the continued elevated pressures in U.S. dollar short-term funding markets.” The Bank of England, the Bank of Canada and the Swiss National Bank also participated…..

“There’s a complete lack of faith in the markets,” said Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London. “There’s a lot of cash hoarding and people losing trust in banks, so the central banks are acting to relieve that. This might not be the last time they have to act.”

Another story discussed the marker response:

The cost of borrowing in dollars overnight tumbled after central banks worldwide pumped $247 billion into money markets.

The three-month rate rose for a third day, to the highest since January, signaling that banks are still wary of more failures among financial institutions after Lehman Brothers Holding Inc. collapsed and the U.S. government took control of American International Group Inc.

“It has already had an effect in the interbank lending market,” said Richard McGuire, a senior fixed-income strategist in London at RBC Capital Markets. “It has improved or taken some of the pressure off liquidity concerns. There are still clear signs of strain.”

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  1. DaddieMac

    Inflation wins! I got varying amounts for the number of billions that are being released and printed across the globe. I expect to change throughout the day as the Market ebbs and flows.

    What happens when the lenders to the US start borrowing? We’re going to have to see

  2. Matthew Dubuque

    Matthew Dubuque

    This is OK, as long as the Treasuries remain incredibly strong and the dollar remains strong.

    The incompetence of the ECB and the Bank of England is coming to the fore.

    Per Rogoff’s warning, who represents the mainstream of Fed policy making sentiment, the Bank of England is stuck with collapsing collateral in long-term repos of over a year in length. The Fed was never so stupid as to enter into such long term RPs. They only RELUCTANTLY extended the term to 28 days or so. That way they can remain nimble, while the B of E is frozen and stranded in their long term RPs.

    Similarly, Trichet’s recent interest rate rise in the face of a deflationary collapse was asinine at the time to seasoned investors.

    The opening of overnight windows in those two institutions has been urged upon them for several months, to deaf ears. Unbelievable.

    And yet the Fed is excoriated publicly.

    What is the end result of all this? Europe is BEGGING for dollars and for Treasuries.

    The markets have spoken.

    Matthew Dubuque

  3. terminal

    I doubt that the word “ease” is warranted by what has happened so far.
    Overnight rates are not quite as high but some other short term money market rates are higher even than yesterday, and TedSpread at the moment is 309, above yesterday’s close and well above the ’87 crash peak.

  4. mxq

    Speaking of lacking confidence, has anybody seen GW?

    That would be great if he could give us a stoic speech about how US taxpayer dollars are not being wasted and that the US will come out of this mess in better shape than it ever has been.

    While disingenous, it would at least be consistent with the rest of his miserable tenure.

  5. Max

    Similarly, Trichet’s recent interest rate rise in the face of a deflationary collapse was asinine at the time to seasoned investors.

    Its not ECB job to pamper “seasoned investors”. ECB charter is price stability, and they did the right thing, considering the tremendous price inflation in the Eurozone.

    It is the Fed who are asinine – blew through they whole balance sheet of T-bills so that the Treasury had to issue them freshly printed Paulsons, and they still have nothing to show for it. The ECB is tightening the rules for the collateral, if you didn’t know.

  6. a

    “and the dollar remains strong”

    I don’t think anyone would say that 1.44 dollar for 1 euro means that the dollar is strong. Not as weak as it has been perhaps, but then you can’t always be setting record lows every day.

  7. doc holiday

    Call me suspicious, call me a dumb blogger, call me when you get a chance, but … what are the odds of all these mergers and failures and restructured on-the-fly deals occurring all within a few weeks of one another – and then the curious nature of new rules, new regulations morphing out of nowhere — without FTC reviews, challenges by Congress or fully disclosed DD, with SEC filings????

    FYI, remember these odds:

    To understand how lucrative that loophole was, just look at the compensation of William McGuire, CEO of UnitedHealth Group Inc., an insurance company in Minnetonka, Minn. Earlier this year, the company revealed that McGuire had accrued more than US$1.6 billion in unrealized stock-option gains. Much of those gains came as a result of an agreement with the company that allowed McGuire to choose the dates on which his stock-option grants came into effect. Not surprisingly, McGuire chose dates around times when the company’s stock hit its lowest point of the year. The odds of choosing those dates at random are about 200 million to one, according to an analysis published earlier this year by The Wall Street Journal. To put that in perspective, the odds of correctly picking all six numbers in the Lotto 6/49 are about 14 million to one, while the odds of being struck by lightning are about 700,000 to one.

  8. Anonymous

    S–I agree. But I just skip over M/D’s comments. Yves, I wish you would throw him out of the party. He’s incredibly annoying and obviously a troll.

  9. MD


    I am NOT a troll.

    I used to be something or other.

    I got a Gold Star in Ms. Chokesondick’s class and came in third in the South Park Elementary Spelling Bee.

    I only make these comments to drive my search ranking up and make it look like I am running this blog.

    Yves, your next post must be about my new film.

    I have spoken.


  10. Anonymous

    M/D, your are out of our class here. Surely, there other blogs where the depth of your insights would be even appreciated.

  11. caesar hispaniae

    I believe that camrades bernanke, paulson and trichet deserve to be awarded with the “order of lenin” medal.

    I hope they wear it hunging from their nuts…

  12. Max

    I believe that camrades bernanke, paulson and trichet deserve to be awarded with the “order of lenin” medal.

    OK, I really have a problem when people use the word “socialism” when describing the fascist junta that’s running this country.

    Marxism has nothing to do with bailing out the semi-criminal financial oligarchies at the expense of the working masses, put down your crackpipes, Americans.

  13. Yves Smith

    I have gotten enough reader complaints per above and on other posts on Matt D. that one more narcissistic, non-fact based (and that means links, Matt, no BS, like Rogoff representing mainstream Fed thinking, He’s been critical of them on several issues) and I will remove your comments.

    I have given you repeated warnings and readers have given you plenty of negative feedback. You have not been willing to clean up your act. If you continue to fail to do so, you will no longer have a forum here.

  14. Anonymous

    There is nothing Socialist, by itself, about State Ownership.
    There has been state ownership in almost every type of economy.
    – The pyramids in Egypt were built by slaves as part of a State Owned project for the Pharoahs.
    – The cathedrals were built throughout Europe by feudal guildsman as State Owned projects for their Kings and Queens.
    – Capitalist Germany and Italy had state owned companies throughout the 1930’s and 1940’s.

    In light of that experience, there is another term that might be more appropriate instead of “socialism for the rich” – Fascism.

  15. Anonymous

    Hahaha I’m assuming you’re looking for more insightful posts along the lines of
    “”I knew the mob wouldn’t go down without a fight.” – Batman 2008

    How Prophetic”

    And of course,

    “I believe that camrades bernanke, paulson and trichet deserve to be awarded with the “order of lenin” medal.

    I hope they wear it hunging from their nuts…”

    Yea lets keep these quality comments coming but kick out the people who happen to make some sense. You sure are running one hell of a comment forum here!

  16. Max


    emotions are really high now, so to speak. I’m against banning M.D., or anyone for that matter, who does not overstep boundaries of good manners and decency. M.D. never did, what’s the big deal? Because if it’s a just matter of his opinion, banning him is inexcusable.

  17. Yves Smith


    The issue isn’t just decency, He nit-picks things that people say (particularly me, but it has gotten to the point where other readers who have seen it happen to others in comments are taking offense) then adopts a condescending tone and proffers views that are often simply not factually accurate. I don’t go after him when he is wrong or misleading (frequently) because I figure more attention will simply encourage him.

    He is aggressive about offering supposed superior insight when a fair portion of what he provides is off base, sloppy, or debatable.

    And he often offers asides which are completely narcissistic, self-congratulatory, off topic, and degrade the thread. In addition to what you see above and in other posts, I’ve also had some readers complain via e-mail.

    If he were obnoxious but he was accurate and fact based, it would be one matter. I’ll admit he is a borderline case, but this is also the first time I’ve had so many people speak out, so he is creating more ill will the longer he keeps this up. And I’ve given him REPEATED warnings and he seems unwilling or unable to moderate his behavior.

  18. CTMM

    Annon said:

    “- The pyramids in Egypt were built by slaves as part of a State Owned project for the Pharoahs.
    – The cathedrals were built throughout Europe by feudal guildsman as State Owned projects for their Kings and Queens.
    – Capitalist Germany and Italy had state owned companies throughout the 1930’s and 1940’s.”

    There’s a great book by Neil Diamond called “Collapse: Why Societies Choose To Succeed or Fail”.

    One of his best case studies is the people of Easter Island, who locked themselves into a race-to-the-bottom scenario by endowing enormous stone Moa with “stored value”, which could be bought, sold or traded (with interest). The several different tribes of the island bankrupt themselves (and destroyed nearly all of the arable land) by blowing all of their productive output on building bigger and bigger Moa, eventually resulting in so many Moa, of such great size, that the implied value of the Moa vastly outstripped the annual productive output of the island. At some point the tribal leaders no longer believe the other tribes could make good on delivering the “value” stored in the Moa, and liquidity froze.

    Island commerce failed, the basic commodity’s of the island were consumed in attempts to repay debt and their civilization collapsed.

    While Mr. Diamond mostly focuses on resource depletion, watching the financial fireworks of the past year have made me wonder if some of the above-mentioned entities (pyramids, cathedrals, monolithic state run enterprises), were just expressions of the same problem we’re seeing now with fiat currency : where to store all this supposed profit.

    The lack of written records from the high periods of Egyptian civilization make it impossible to know the whole story, but perhaps those giant pyramids are just attempts to store wealth in the form of future debt obligations.

    At this point, I’m all for scrapping the dollar and issuing kilowatt-Koins or Kilo-Calories or something (anything) tied to actual productive labor. How about an incentive to stockpile actual potential energy, instead of these paper pyramids?

    Woah. I may have drifted off into Dubuque territory with this post…

  19. Anonymous

    Matt seems to have trouble getting along with others at most every board he shows up on. For amusement value go look at some of his posts on Yahoo chat boards.

    Apparently however he plays the bongos very well (no joke).

  20. Richard Kline

    The world is scrambling for $s because they have massive amounts of swooning $ debt they have to prop up, not because they want the Shrink-O-Buck. And ~$250B dumped into the markets puts pressure on the $, and not on the appreciation side. The ECB is working on a time frame of months and years; the Fed on a timeframe of hours and days. When we have the evidence on the scale of ECB actions, we will be able to evaluate them. Tune in 18 months from now. —But because we have evidence on the timeframe of the Fed, we can already evaluate _them_: F is for Fake, Failure, Flailing, and Fraidy-funk. Their sheet is crap; they are reduced to accounting games to mask their zero printing, which from here on out must only become more voluminous, vacuous, and viral; their faux ‘liquidity’ heals nothing but keeps failed institutions at the table eating what grub there is, when institutions which can be saved get crumbs. Oh well: we knew this was coming, right? . . . Most of us.

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