Fed, global central banks move to boost financial system

[IDemo]

Source: msnbc.com

By Patrick Rizzo

The Federal Reserve said Wednesday that it joined some of the world's major central banks in a coordinated action to inject liquidity into the global financial system.

Joining in the move were: the Fed, The Bank of Canada, the Bank of England, the Bank of Japan and the European Central Bank, the Fed said.

"The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity," the Fed said in a statement.

Read more: http://bottomline.msnbc.msn.com/_news/2011/11/30/9113897-fed-global-central-banks-move-to-boost-financial-system

[naaman fletcher]

1. On other words, they are going to print money to give to the banks,

which all of us will pay for in the end.

[JCMach1]

6. Exactly, we would be talking TRILLIONS

With no accountability, we may not even know the number for years...

[banned from Kos]

10. Absurd. Its just an extension of currency swaps at a lower rate.

"The European Central Bank borrowed $552 million through the existing facility during the week ending Nov. 23 to meet the liquidity needs of European banks. Data for the past week is not yet available.

Under the new terms of the program, the existing interest rate premium of 0.1 percentage points on those loans will be reduced by half, to 0.05 percentage points, effective Dec. 5.

The other central banks said they had also agreed to make similar loans of their own currencies as necessary, but they noted that the only extraordinary demand at present was for dollars."

(NY Times)

[naaman fletcher]

19. they create the money they are borrowing. nt.

[girl gone mad]

31. Why should we be subsidizing Eurpoean banks with below market rate loans?

Must protect those bondholders at all costs. Crush the productive sector and replace it with "liquidity injections". Got austerity?

:eyes:

[goodboy]

2. How injecting some liquidity into MY financial system? (nt)

[Odin2005]

3. MORAL HAZARD ALERT!!!

[bloomington-lib]

4. I have complete faith in them. Everything they've done so far has worked.

[Magoo48]

12. Really, what could go wrong?

[JCMach1]

5. The FED just put the US taxpayer on the hook for Trillions more

of, in this case, foreign debt...

Shipping dollars to Europe to ward off a liquidity crunch there.

[banned from Kos]

8. In reality, the Fed just cut the swaps rate in half.

No taxpayer is "on the hook".

[JCMach1]

9. So, we are not all on the hook for the value of our dollar?

Plus they gave us this ominous statement:

the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise," the Fed said... http://online.wsj.com/article/SB10001424052970204012004577069960192509068.html

[banned from Kos]

11. If we swap dollars for Euros and the dollar falls against the Euro then

we profit via the higher Euros we are holding.

I'm guessing the dollar maintains its relative strength though after today (just a guess, currency speculation is for the pros).

[NCarolinawoman]

15. CNBC just said the only thing to take a hit in this deal are "greenbacks".

ie, dollar not worth as much. Other than that, the crowd at CNBC seems to be elated.

[banned from Kos]

18. Dollar is 78.18 (DXY) or down 1% which is on the high end of 2011

In March 2008 the DXY was 71. Despite all the Fed's actions the USD has gained relative strength.

The Doomers at ZeroHead cannot understand this action.

We need to head off a Euro recession to enhance Dem election chances - so I am all for it.

[girl gone mad]

30. Which means this action is already failing in one way.

The only way to preserve the EMU now is to dramatically weaken the Euro, enabling Eurozone countries to run a trade surplus with the U.S. and Asia.

[earthside]

7. But Dow futures are soaring on the news!

Instant gratification -- the American way.

[banned from Kos]

13. Liquidity --- the life blood of commerce. n/t

[Roland99]

14. On FX intervention and the ECB/SMP

http://www.zerohedge.com/contributed/fx-intervention-and-ecbsmp

I sat on FX interbank desks in the 70’s and 80’s when the NY Fed came into the FX markets on a regular basis in an effort to stabilize and steer the dollar. The “Stick” (what the Fed was called) was on both the sell and buy side at different times over those years. This was low-tech time. There was a direct telephone wire to the Fed desk. It would light up and they would ask for a price on $100mm USDDM (no Euros then). Dealers are obligated to make prices. You knew you were going to get slammed as soon as they said:

“Done for a 100 mil. We can carry on at that price”.

All hell would break out in the FX markets when the Fed intervened. I would get little sleep for a few days. After about a dozen of these sphincter event I formed my own opinions on how intervention should be conducted. There’s plenty of academic stuff on this too. The following are considerations when evaluating the efficacy of FX intervention. Some of the lessons apply to the dilemma the ECB finds itself in today.

When confronted with unstable markets where the instability is, by itself, undermining the broader economy, the first objective is to re-establish stability. There is only one way to do that in the short-term. The financial authorities must establish Two Way Risk back into the market. Ideally, the objective is to create as much risk in being long as the risk of being short.

The ECB has failed to establish two-way risk. Virtually every (Italian, etc) bond that has been sold over the last few months has been a “good” sale. There has been no risk to selling, the only risk has been in buying. If the ECB wants to be successful they must create a risk situation that is equally weighted. Call that shock and awe. It has to call the dealers and make them understand sphincter power. (As the Fed did to me.) In my day, the the term “Don’t fight the Fed” came into being because the Fed had learned (after early failures) that it had to be on the offense when it came to intervention.

[Roland99]

16. Foreign Currency Liquidity Swaps (aka Global Bail Out Plan B) FAQs

http://www.zerohedge.com/news/foreign-currency-liquidity-swaps-aka-global-bail-out-plan-b-faqs

Those wondering about the global Fed bailout (this is not the first time, recall How The Federal Reserve Bailed Out The World) can read the FAQ from none other than the source of the global liquidity tsunami itself.

Frequently Asked Questions: Foreign Currency Liquidity Swaps

.....

[Roland99]

17. Here Is What Happened After The Last Global Coordinated Central Bank Intervention

http://www.zerohedge.com/news/here-what-happened-after-last-global-coordinated-central-bank-intervention

http://www.zerohedge.com.nyud.net:8090/sites/default/files/images/user3303/imageroot/2011/12/20111130_ESsave.png

[Nye Bevan]

20. Can you explain in relatively simple terms what that graph is telling us?

For those of us less mathematically inclined?

[banned from Kos]

21. Its not telling anyone anything of value. Its just a chart with some down arrows on it.

ZeroHedge specializes in them.

[Roland99]

22. It's a chart of the S&P500 closing numbers for September.

There was a coordinated intervention mid-Sept:

The Global Liquidity Bailout Arrives: World Central Banks Announce Global Dollar Shortfall Funding Resolution
http://www.zerohedge.com/news/global-liquidity-bailout-arrives-ecb-announces-emergency-liquidity-providing-operations-conjunc


obviously it didn't work out too well.

[Roland99]

23. Fed Made Decision To Bail Out Europe On Monday

http://www.zerohedge.com/news/fed-made-decision-bail-out-europe-monday

[elleng]

24. Central Banks Take Joint Action to Ease Debt Crisis.

Source: nyt

The Federal Reserve moved Wednesday with other major central banks to buttress the financial system by increasing the availability of dollars outside the United States, reflecting growing concern about the fallout of the European debt crisis.

The banks announced that they would slash by roughly half the cost of an existing program under which banks in foreign countries can borrow dollars from their own central banks, which in turn get those dollars from the Fed. The banks also said that loans will be available until February 2013, extending a previous endpoint of August 2012.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a statement.

On Wall Street, stocks raced ahead at the 9:30 a.m. start .


Read more: http://www.nytimes.com/2011/12/01/business/central-banks-move-together-to-ease-debt-crisis.html?_r=1&hp

[WCGreen]

25. Yea, that will work...

[Po_d Mainiac]

26. To be reflected at the gas pump in ...5-4-3

[Safetykitten]

27. So we are paying for this right? I mean there is no fucking way we are not.

The Bernank is helping out on this?

[NCarolinawoman]

32. Some economist on CNBC said the stock market was on a "sugar high".

He explained that all of this maneuvering was to "buy time". It was only a temporary fix.

I wish I could remember the fellow's name. His audience at NBC looked a bit concerned.

[dipsydoodle]

28. World's central banks act to ease market strains

FRANKFURT, Germany (AP) -- Major central banks around the globe teamed up Wednesday to ease the strains that Europe's debt crisis has placed on the world's financial system. Stock markets rose sharply in response.

The coordinated action aims to stimulate economic growth by making it easier for banks to lend to each other and to businesses by providing dollars if they need them. It was taken by the U.S. Federal Reserve, European Central Bank, Bank of England and the central banks of Canada, Japan and Switzerland.

The announcement came just hours after China's central bank took steps to shore up slowing growth. It was the first easing of Chinese monetary policy in three years - and stronger growth in China could be crucial for a suffering global economy.

Stocks markets around the globe surged. The Dow Jones industrial average traded 410 points higher in midday trading New York time. Germany's DAX rose 5 percent and France's CAC was up 4.0 percent. The euro rose 1.1 percent to $1.3463 and oil was up $1.32 to $101.11.

http://hosted.ap.org/dynamic/stories/C/CENTRAL_BANKS?SITE=CAANG&SECTION=HOME&TEMPLATE=DEFAULT

[DJ13]

29. That explains the obvious pump job in the markets today

Ignore everything else, money talks.

[Dark]

33. So, we're now the lender of last resort for ALL of Europe? Really good and really bad news.

What this tells me is that Europe's central bank has gone beyond being not willing to lend euros. They obviously want to inject capital into the markets. That's the good news, as it will really help the global economy.

But the bad news? What this says to me is that banks are no longer taking Euros -- They don't trust them. THAT'S bad news -- the banks think the Euro's going to fail.

Even if they'll be getting the dollar at a lower rate -- The ECB supposedly thinks inflation is a big deal. This will certainly deflate the Euro, which is not a good thing. But, they could lower their own rate along with this if they want more liquidity.