Category Archives: Federal Reserve

Fed Takes Half-Hearted Measures to Halt "Unfair and Abusive" Mortgage Practices

Why am I cynical about the measures that the Federal Reserve proposed today to stem predatory mortgage lending? They smack of being an obligatory effort taken in the face of Congressional and media pressure. The Fed appears to have done little in the way of its own investigation of what is happening in the field […]

Are Central Bankers Providing Needed Liquidity or Capitulating? (ECB Intervention Edition)

On Monday, the European Central Bank announced an even more aggressive version of a liquidity facility it had used last August in its efforts to lower interbank lending rates that are stubbornly higher than policy rates. This move is an admission that the coordinated efforts of five central banks last week, including the Fed and […]

Is Goldman Insuring Against a Banking Industry "Disaster"?

John Dizard of the Financial Times has learned that Goldman is trying to find a counterparty for a bearish position on banking industry risk. Is this a house bet, a hedge, an attractive product, or is the firm merely trying to find a taker for a punt a client wants to make? Regardless, the actions […]

Further Discussion of the Central Banks’ Attempts to Stimulate Interbank Lending

Steve Cecchetti, Professor of Global Finance at Brandeis, has a nice post at Vox EU, “The Art of Crisis Management: Auctions and Swaps.” The title’s misleading; Cecchetti describes it as a FAQ on the central bank actions of last week to try to close the unusually high and troubling spread between interbank rates like Libor […]

Mr. Minsky Moment Calls for Rate Cuts

An odd sign of the times, or perhaps specifically, of financial stress; reversals of position. Today we have Citigroup, which previously stated it wouldn’t take SIV assets on to their balance sheet, relenting and doing just that. The Fed makes a few hawkish noises but still delivers a rate cut. Henry Paulson, a believer in […]

No Change in Libor After Central Bank Action

Shock and awe indeed. The markets remain unimpressed after yesterday’s coordinated action by five central banks explicitly to address the lack of liquidity in the money markets. The cost of dollar borrowing did fall slightly, but less than expected. From Bloomberg: The interest rates banks charge each other for short-term loans remained close to the […]

Maybe the Real Reason for the Central Bank (Especially the Fed’s) Actions Wednesday

One of the perils of being an evening/overnight blogger is that one is either early or late to news items. But a positive aspect of being on the late side is that one can (hopefully) be thoughtful rather than reactive. Wednesday we had the spectacle of five central banks taking coordinated action to deal with […]

Central Banks Coordinate to Inject Liquidity, First Time Since 9/11

Bloomberg reports on the coordinated effort by major and even some not-so-major central banks (Canada’s and Switzerland’s central banks are included) to tackle high interbank lending rates. One investor called it to “shock and awe,” which is a worrying comparison. In fact, the plan does not add net liquidity, but merely provides additional one-month term […]

Is the Fed Using the Wrong Playbook?

John Dizard, in the Financial Times, tells us how the Fed is giving the wrong medicine to the colicky credit markets. But even though Dizard, in effect, argues that the Fed doesn’t get it, he isn’t taking up the verging-on-hackneyed lament, “the markets are a mess, so the Fed needs to open the floodgates.” Dizard’s […]

Maybe I Am Too Cynical (Wall Street Journal Edition)

We’ve noted on this blog repeatedly that the Wall Street Journal does an erratic job of covering the credit markets, sometimes reporting stories as late as a full month after they have appeared either at Bloomberg or the Financial Times. And we’ve also repeatedly caught the Wall Street Journal putting a positive spin on news […]

Rising Inflation Expectations Conflict With Fed Rate Cut

A story on Bloomberg notes that the Fed has been sanguine so far about inflation because inflation expectations haven’t seemed to be rising. However, a measure the Fed relies upon, the five year forward inflation rate, has risen above the level that led the Fed to start its rate increases in 2004. In other words, […]

Traders Cut Estimates of 50 Basis Point Rate Cut, But Asset Backed Commercial Paper Rates Rise

Two Bloomberg stories discussed the conflicting currents in the short term markets. First on the reduced expectations of a large Fed funds rate reductions: Futures contracts on the Chicago Board of Trade indicated a 24 percent chance that policy makers will lower the 4.5 percent target rate for overnight lending between banks by a half- […]

US Recession May Be the Best Medicine

The headline above isn’t precisely how Gilles Saint‑Paul of the Toulouse School of Economics states his conclusions in his article at Vox EU, “How the US imbalances can be corrected.” But he makes a solid case that a US recession is likely the better way to deal with our current economic mess than rate cuts. […]

Fed Funds Futures Say Traders See Odds of 50 BP Rate Cut at 50%

This story on the sentiment among traders appeared on Bloomberg this afternoon. It appears the Fed’s bout of hawkishness was awfully short lived, since the latest move is in reaction to Kohn’s and Bernanke’s latest statements, plus the rising in dollar Libor, which is now 65 basis points over the Fed funds rate. The 50% […]

More UK Credit Market Worries (Plus Further Discussion of the Likely Efficacy of Rate Cuts)

The US isn’t the only country facing a nasty inflation/deflation policy dilemma. The Financial Times gives us further detail on the worrisome conditions in the UK money markets, and a story in the Telegraph describes how the UK’s Shadow Monetary Policy Committee is troubled by the unprecedented drop in loans outstanding from August to the […]