Central banks fight credit crisis

Aurora · Post by **Aurora** » 11 Mar 2008, 18:21

http://news.bbc.co.uk/2/hi/business/7289815.stm

BBC News - 11/03/08

The world's largest central banks have launched their latest coordinated action to calm jittery credit markets.

The US Federal Reserve, the European Central Bank and central banks in the UK, Canada and Switzerland will inject billions of dollars into money markets.

The injection of cash is aimed at easing the global credit crunch by providing cheap funds and making banks more willing to borrow and lend money.

Article continues ...

Totally_Baffled · Post by **Totally_Baffled** » 11 Mar 2008, 20:28

Oil, gold and commodities are therefore heading for the skies!

Looks like the inflationary route has been chosen!

I shall lap up my 3% annual pay rise (LOL

)

I am off the buy a wheelbarrow while I can to carry my loose change!

Moadib · Post by **Moadib** » 11 Mar 2008, 22:43

"The world's largest central banks have launched their latest coordinated action to calm jittery credit markets".

Or as Bill Bonner would explain it, "Central banks seek to unblock markets, reported the Financial Times on August 12...In fact, what the bankers were up to was the exact opposite of what the FT reported. At the end of that week and the beginning of the last one, central banks all over the world were engaged in a vigorous attempt at price fixing and market manipulation; that is, they were trying to block markets from doing what they needed to do.

The purpose of all this lucre was said to be to provide "liquidity". What is liquidity, you may wonder? Lo...it is the same cheap money that got markets in trouble in the first place!"

http://www.dailyreckoning.com.au/federa ... 007/08/21/

RenewableCandy · Post by **RenewableCandy** » 12 Mar 2008, 09:59

If they must print lots of new money, why on earth can't it be "issued" to someone who deserves it?...Like all those NHS trusts that are up to their ears in debt, or, erm, RenewableCandy?...

skeptik · Post by **skeptik** » 12 Mar 2008, 12:20

RenewableCandy wrote:If they must print lots of new money, why on earth can't it be "issued" to someone who deserves it?...Like all those NHS trusts that are up to their ears in debt, or, erm, RenewableCandy?...

As far as I can tell, it's being lent, not printed.( I'm not an expert - open to correction!)

In the delightful phraseology of a poster elsewhere, the FED is 'eating shit sandwich' - lowering the standards of what it will accept in collateral in return for T-Bills on a 28 day term. As a result Treasury Bills are now rated as more risky by the markets than Bundesbank notes.

This could just be a short term fix to bail out a particular large financial institution which is in trouble. Long term it doesnt do anything to address the solvency crisis in the US (and global?) system. This one will run and run - and could blow up at any time.

Blue Peter · Post by **Blue Peter** » 12 Mar 2008, 12:24

skeptik wrote:
RenewableCandy wrote:If they must print lots of new money, why on earth can't it be "issued" to someone who deserves it?...Like all those NHS trusts that are up to their ears in debt, or, erm, RenewableCandy?...
As far as I can tell, it's being lent, not printed.( I'm not an expert - open to correction!)

I believe it's actually a swap - T-bills for "AAA" (ho ho ho!) rated mortgage securities from Freddie and Fannie,

Peter.

dudley · Post by **dudley** » 12 Mar 2008, 13:10

http://www.prospect.org/csnc/blogs/beat ... bailout_in

Can?t the media find any economists who don?t think that handing hundreds of billions of taxpayer dollars to the big banks and the incredibly rich people who own and manage them is a good idea? Apparently not, given the coverage so far to the Fed?s proposal to lend $200 billion to the banks using mortgage backed securities as collateral.

The workings of the Fed and the financial markets can appear complicated, so let?s simplify matters a bit to make it more clear what is going on here. Suppose that it was suddenly discovered that much of the wealth held by the country?s leading financial institutions was in fact counterfeit. Instead of having hundreds of billions of dollars of real currency in their vaults, institutions like Citigroup, Merrill Lynch, and Bears Stearns actually had hundreds of billions of dollars of counterfeit currency. Suppose further that the public did not know exactly who held what in terms of counterfeit currency, only that all of them had a lot of it. (The point here is that these banks hold mortgage backed securities, many of which are only worth a fraction of their face value, and therefore can be viewed as the equivalent of counterfeit currency.)

In such circumstances, investors would be very reluctant to accept the credit of any of the major financial institutions. They couldn?t know whether most of their assets were in fact counterfeit, and they were dealing with a bankrupt institution, or whether the counterfeit currency was only a limited share of the wealth, which would not jeopardize the institution?s ability to meet its obligations.

This is in fact the credit squeeze that we?ve have recently witnessed.

It seems that Bernanke announces another bailout whenever the Dow dips below 12,000.

skeptik · Post by **skeptik** » 12 Mar 2008, 13:50

CDS report: Fed move fails to impress

excerpts:

European credit markets took the Fed?s $200bn liquidity injection with a hefty pinch of salt on Wednesday.

A powerful surge in US equities overnight ? triggered by the Fed move ? helped European credit default swaps tighten, but analysts said the rally would be short-lived.

While the Fed intervention would ease liquidity pressures at banks and brokers, analysts said it did little to help solvency problems and turmoil in credit markets.

?We do not think the Fed?s measures will do anything to stop the deleveraging and forced selling at levered accounts,? said Willem Sels, credit strategist at Dresdner Kleinwort. ?Once again we think the Fed is pushing on a string. The attempt to increase liquidity will likely not change the banks? risk appetite or credit spreads.?

"?We inch closer with each of these interventions to a full scale bail out of the financial system.?
Jim Reid at Deutsche Bank

SunnyJim · Post by **SunnyJim** » 12 Mar 2008, 13:53

I don't suppose the FED intervention has anything to do with the rumours about Bear Sterns would it now???

http://ftalphaville.ft.com/blog/2008/03 ... e-persist/

Moadib · Post by **Moadib** » 12 Mar 2008, 19:22

RenewableCandy wrote:If they must print lots of new money, why on earth can't it be "issued" to someone who deserves it?...Like all those NHS trusts that are up to their ears in debt, or, erm, RenewableCandy?...

It's because the new "money" IS the debt. If they eliminate the debt, they eliminate the money.

Sobering thought - there is not enough money currently in existence, for everyone to get out of debt. To allow that, more money has to be created, which is debt, which carries interest, which entails even more money to be created to pay off.

We live in a giant Ponzi scheme.

RenewableCandy · Post by **RenewableCandy** » 12 Mar 2008, 21:26

Moadib wrote:
RenewableCandy wrote:If they must print lots of new money, why on earth can't it be "issued" to someone who deserves it?...Like all those NHS trusts that are up to their ears in debt, or, erm, RenewableCandy?...
It's because the new "money" IS the debt. If they eliminate the debt, they eliminate the money.

Sobering thought - there is not enough money currently in existence, for everyone to get out of debt. To allow that, more money has to be created, which is debt, which carries interest, which entails even more money to be created to pay off.

We live in a giant Ponzi scheme.

I watched the film (that marvellous cartoon about debt on Youtube) and sort of understood it but I still can't quite believe it...it just seems so barking (sorry for yet more doggist comments!)

Andy Hunt · Post by **Andy Hunt** » 13 Mar 2008, 00:04

Moadib wrote:
RenewableCandy wrote:If they must print lots of new money, why on earth can't it be "issued" to someone who deserves it?...Like all those NHS trusts that are up to their ears in debt, or, erm, RenewableCandy?...
It's because the new "money" IS the debt. If they eliminate the debt, they eliminate the money.

Sobering thought - there is not enough money currently in existence, for everyone to get out of debt. To allow that, more money has to be created, which is debt, which carries interest, which entails even more money to be created to pay off.

We live in a giant Ponzi scheme.

Looks like the great debt collector in the sky is about to send the bailiffs in.

SunnyJim · Post by **SunnyJim** » 13 Mar 2008, 07:49

Andy Hunt wrote:
Moadib wrote:
RenewableCandy wrote:If they must print lots of new money, why on earth can't it be "issued" to someone who deserves it?...Like all those NHS trusts that are up to their ears in debt, or, erm, RenewableCandy?...
It's because the new "money" IS the debt. If they eliminate the debt, they eliminate the money.

Sobering thought - there is not enough money currently in existence, for everyone to get out of debt. To allow that, more money has to be created, which is debt, which carries interest, which entails even more money to be created to pay off.

We live in a giant Ponzi scheme.
Looks like the great debt collector in the sky is about to send the bailiffs in.

If nothing else, the fed intervention has been responsible for some great metaphores!!!!!

RenewableCandy · Post by **RenewableCandy** » 13 Mar 2008, 10:22

SunnyJim wrote: If nothing else, the fed intervention has been responsible for some great metaphores!!!!!

What on earth will we do when they have all been used up??

SunnyJim · Post by **SunnyJim** » 13 Mar 2008, 11:10

RenewableCandy wrote:
SunnyJim wrote: If nothing else, the fed intervention has been responsible for some great metaphores!!!!!
What on earth will we do when they have all been used up??

Scrape the barrel?

PowerSwitch

Central banks fight credit crisis

Central banks fight credit crisis

there goes the global economy...