Category Archives: Federal Reserve

Bear Death Watch: Update and Nightmare Scenarios

Given the weekend, there was not much in the way of news on the Bear Stearns front, save further clarification of how perilous its state is. From CNBC: Department heads at Bear Stearns met with officials at J.C. Flowers and JPMorgan Chase Saturday afternoon to give an overview of their business divisions, including headcount and […]

"A world addicted to easy credit must go cold turkey "

This article by Jeff Randall in the Telegraph does a nice job of looking at the causes of our credit mess and articulating implications. And he quotes my hero Paul Volcker (do you know that he stayed at the Fed fixing the economy even though his wife was very sick and he was having trouble […]

"Debt Reckoning: U.S. Receives a Margin Call"

I rarely feature Wall Street Journal articles in long form because I figure most readers will find them on their own. But the Journal’s Saturday edition isn’t as widely read, and this is an exceptionally good piece, particularly given that the Journal is not the best source on credit market reporting. The ongoing crisis seems […]

Bear Death Watch: Why It Failed

As I am sure you all know by now, Bear Stearns started coming spectacularly unglued last night, and called JP Morgan, who in turn tapped the Fed, who sent examiners who stayed at the firm all night. In the morning, a plan was announced by which the central bank would assume the risk of lending […]

Bear Bailout: Is No One Too Small to Fail?

The news that Bear had to run to the Fed for help with its rapidly deteriorating cash position, and JP Morgan has been muscled into assisting in the rescue is a sign that Bear was deemed too big to fail. The Fed is lending against Bear’s collateral (I haven’t seen an estimate as to how […]

Krugman: Fed is Running Out of Tricks

Krugman, in his New York Times op-ed today, “Betting the Bank,” reminds us that the Fed is much like the Wizard of Oz: the perception of its power vastly exceeds reality. In normal times, the limited tools central bankers have at their disposal can be used to great effect, but extreme conditions reveal their impotence. […]

Hamilton: The Fed Cannot Solve the Credit Crisis

James Hamilton, in “Asking too much of monetary policy,” is trying to talk sense to a Fed that just doesn’t get it. Hamilton ought to have some cred; he proved to be remarkably prescient when he warned in his presentation at the Fed’s Jackson Hole conference of the danger of the markets playing chicken with […]

Fed to the Rescue of Fannie and Freddie

The Fed’s move today to lend up to $200 billion against mortgage backed securities comes as close as one can without an act of Congress to affirming the implicit Federal guarantee of Freddie Mac and Fannie Mae debt. Its new facility, the Term Securities Lending Facility, will lend to primary dealers through 28 day auctions, […]

No Exit: Will "A Short Financial Crisis Become a Long One"?

By happenstance, three articles in the Financial Times provide useful, if disheartening, triangulation on the credit crisis. In sum, the markets are a mess, policymakers don’t agree on what to do, and there may be nothing they can do except make matters worse. Last week was by any standards a bad week, with the Fed’s […]

On Krugman’s Worries and the Breakdown of the Securitization Model

Paul Krugman usually has enough important topics to occupy himself, like the sorry state of health care, income inequality, tax policy, Bush Administration offenses du jour, that he rarely gets around to matters financial. But stress in the markets has again come to the fore, so Krugman is taking a serious look. Not surprisingly, he […]

Covert Nationalization of the Banking System

One of the upsides of blogging is sometimes other inquiring minds get to the bottom of matters that have been nagging at you. We had warned a couple of months ago that a colleague with serious connections into the Treasury and Fed told us they were working on plans for a quasi-nationalization of the banking […]

Hamilton: Negative Real Interest Rates Feeding Commodities Bubble

Jim Hamilton must feel like a Cassandra. At the Fed’s Jackson Hole conference last August, Hamilton gave a presentation that warned that the pricing of Fannie’s and Freddie’s debt was unwarranted given their highly leveraged balance sheets unless you believed that they really were full faith and credit obligations. He warned that assumption would be […]

Fed Fund Rate Predictions

Courtesy the Cleveland Fed. Note that this is as of time, the Fed fund futures market says there is zero probability of a 25 basis point reduction. A 50 basis point cut has 50% odds. Note this chart is dated March 6. and therefore does not reflect the impact of the announcement of the increase […]

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 […]

Fisher: Don’t Expect the Fed to Bail You Out

Let’s see if the credit markets take this warning seriously. From Bloomberg: Federal Reserve Bank of Dallas President Richard W. Fisher said investors shouldn’t assume the Fed will keep up the recent pace of interest-rate cuts. “We reacted with very deliberate actions” in January, said Fisher in an interview with Bloomberg Television in Paris. “That […]