Investment-blog.net: Stocks, Emerging markets, Bonds, Currencies and Commodities

Fed turns on the spigot of money again. “The Fed’s new term securities lending programis its most creative, and best,

Mar 11, 2008 Market Outlook

Fed turns on the spigot of money again

Mortgage-backed securities will be swapped for safer Treasurys

By Rex Nutting & Ruth Mantell, MarketWatch

Last Update: 10:19 AM ET Mar 11, 2008

WASHINGTON (MarketWatch) - The Federal Reserve and other leading central banks
announced further steps Tuesday to flood dysfunctional credit markets with enough
money to get them working again.

The Fed announced a new temporary lending program that will allow participants in
the bond markets to swap the mortgage-backed securities that they can’t currently
sell for highly liquid Treasurys that they can. The hope is that the extra money
in the financial system will restore trust and keep prices of illiquid securities
from plunging.

After the latest action, the Fed will have provided more than $400 billion in
Treasurys in an effort - so far futile - to grease the wheels of commerce that
have seized up.

Financial markets welcomed the announcement, with U.S. stock markets and the
dollar rising. Treasury prices fell on the flood of new supply from the Fed’s
portfolio.

“The Fed’s new term securities lending programis its most creative, and best,
idea yet,” wrote Lou Crandall, chief economist for Wrightson ICAP. “It will
provide financing for an asset class [residential mortgage-backed securities]
that is under severe pressure and which the Fed cannot finance through regular
operations.” Read more analysis from David Weidner.

Did you like this? If so, please bookmark it, about it, and subscribe to the blog RSS feed.

Possibly Related Posts:

• Depression? Oversold? Just the beginning? Close to the end? You will find zero guidance from quality analysts.
• A List of ETFs You Should Know In Stock Market
• Florida pension fund loses a quarter its value
• Good bye to U.S dollar. Say hello to Gold and Amero
• S&P 500 losses nearly $1 trillion more than 2000-02

Did you like this? If so, please bookmark it, about it, and subscribe to the blog RSS feed.