The Federal Reserve made the highly unusual move that had been rumored on Wall Street since at least Wednesday night, cutting the discount rate for Fed loan to banks by fifty basis points. The discount rate covers the interest on loans, which are called reps, that are collateralized by lower quality securities not backed by government agencies than loans made under the federal funds rate.
The cut in the discount rate moves the rate to 5.75 percent from 6.25 percent. The more important federal funds rate remains unchanged at 5.25 percent. Some say that the discount window rate cut is mostly a symbolic act, since so little borrowing is made from the window. Others are saying that the borrowing at the discount window may increase since the cut close the gap between the two rates, making the penalty for borrowing with non-government securities far smaller.
Several companies that have recently had trouble borrowing money, including home lender Countrywide, may now find it easier and cheaper to borrow, as banks, thrifts and credit unions will be able to avail themselves of more cash to lend at cheaper rates in exchange for lower quality securities. It also may have the effect of creating a more liquid market in many credit products, including mortgage backed debt securities.
Another change coming from the the Fed may also help ease pressure on the credit markets. Ordinarily, money available at the discount window may only be borrowed on a very short term basis. Today the Fed has expanded the “repo periods” to as long as thirty days.
Equity futures jumped almost immediately. Although the Fed Funds target rate remains unchanged, the Federal Open Market Committee said it was monitoring market and economic conditions and was “prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.”
The Fed cited “financial market conditions” and “tighter credit conditions” in making the move. Significantly, the Fed indicated that uncertainty in the credit and capital markets might extend beyond the financial markets and “restrain economic growth going forward.” Many believe the recent freezing up of the commercial paper market may have prompted this morning’s move.
Press Release From Federal Reserve [Federal Reserve]
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This is clearly aimed at Countrywide so that they can finance operations through Repos and you know, not go bankrupt. That being said there was never any chance of CFC going under. Cerberus or BofA or any number of other player would come in and buy them.
Unbelievable…isn’t this what got the Fed into trouble in the first place – bailing out the markets when they should have let the bubbles deflate?
Talk about having limited room for maneuver – if they do nothing, the credit crunch will take more victims.
If they lower the interest rates significantly, the dollar will collapse and take the bond market with it – ending up with same result – credit crunch. How long can you postpone the inevitable?
That’s it bears, back to business, Dow 15,000 by the end of the month.
The bubble will still deflate. We still haven’t heard all the hedge funds that are going to fold. This move is more to keep companies like CFC from going under
This will be good news until about lunch time when the world outside of Wall Street realizes that a cut at the discount window means nothing to the millions of folks looking for rate cuts on their mortgages. This is lipstick on a pig, and is merely delaying the inevitable.
“This will be good news until about lunch time”
Yep, dumb money going crazy right now, they’ll come back to earth eventually. Time to short.
hi Folks,
What’s the best thing to short with my student loan ?
“hi Folks,
What’s the best thing to short with my student loan ?”
Haha – I love it.
finally they opened the damn discount window
Free money today to be made shorting lenders and homebuilders that are up 10%. There will be more negative news in the future
I wonder how the quant models are handling this….
Hey..The Fed didn’t give you greedy Wall street guys free money so that you could short stocks. Give it back…
It was the news about the “for sale” sign on that helicopter that finally melted Bernanke’s heart.
That, and the throbbing vein on Cramer’s forehead.
sometimes i wish i didn’t know anybody and could say buy wamu for the yield
What a jackass….
http://www.thestreet.com/s/six-rules-that-got-you-through-the-mess/markets/activetraderupdate/10374976.html?puc=_tsccom
Never short Cramer, Fed saved the day. The boys are back in business, dow 15,000 here we come! blackstone is a BUY BUY BUY! Wait a minute, what just happened?
Let’s see what Cramer says when this rally expires in …2 hours?
Never, ever listen to people whose main business is to talk.
bill poole is shameful!!
come see me when the market closes +500
Jim Cramer just upped his estimate to up 600 by the end of the day.
Does anyone have a YouTube of Cramer getting bullish this morning. He phoned in to CNBC to rub it in the shorts face. Would be a great clip to have if this market closes down today.
i think cramer said on the cnbc call this morning djia would close +1,000
Cramer is talking up the market so dumb money will come in to buy while he is selling. He has done that his whole career.
Who is running the market? Jackie Mason? “First we go uuup then we go dowwwn, up 300, down 400 up 600 down 1000, I dont know what to dooo, sell a call, buy a put, long, short, cut the rate, don’t cut the rate, this is driving me meshugena!”
To provide stability they make an unexcpected announcement on Options Friday.
Fuckin Brilliant….
I bet the quants have made a fortune the past three days.
http://www.cnbc.com/id/15840232?video=473088648
Is there any question the Fed are just sheep bitches? This isn’t going to help, in fact, it’s just more of what got us here. Why is it Americans – especially those in finance – refuse to eat what they cook? And how is it that Quants still exist, because THIS time they’ll figure out how to make markets rational? No, it’s because idiots like the Fed will bail them out. And is the Fed somehow going to know how to price the crap no one has been buying for weeks… gee, I wonder if they’ll get taken advantage of. Okay, I’m almost done.
You’re not going to beat the house at their own game. Financials are the house. The Fed will bail them out each and every time.
the greenspan put is back, baby!
I think in 10 years time we will look back on today as the day “Jim Cramer broke the Federal Reserve Bank” it will rank with Soros’ billion dollar day shorting the pound.
How could you be long term short on GS with Paulson as the Treasury Secretary?
Nouriel Rubini’s crowd of Tin Foil Hat conspiracy theorists will be very upset by this… just throws more fuel on the fire