Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Financial Armageddon Postponed- Fed Intervenes In Money Markets

Stock-Markets / Government Intervention Sep 19, 2008 - 09:59 AM GMT

By: Mike_Shedlock

Stock-Markets Best Financial Markets Analysis ArticleThe Fed has announced new liquidity measures this morning governing non-recourse funding of asset backed commercial paper and plans to purchase short-term debt obligations issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

Here is the Fed Press Release On Liquidity Measures .


The Federal Reserve Board on Friday announced two enhancements to its programs to provide liquidity to markets. One initiative will extend non-recourse loans at the primary credit rate to U.S. depository institutions and bank holding companies to finance their purchases of high-quality asset-backed commercial paper (ABCP) from money market mutual funds. This should assist money funds that hold such paper in meeting demands for redemptions by investors and foster liquidity in the ABCP markets and broader money markets.

To further support market functioning, the Federal Reserve also plans to purchase from primary dealers federal agency discount notes, which are short-term debt obligations issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

Statement Regarding Planned Purchases of Agency Debt

Statement Regarding Planned Purchases of Agency Debt The Federal Reserve has announced that the Open Market Trading Desk (Desk) will begin purchasing short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks in the secondary market for the System Open Market Account.

Similar to secondary market purchases of Treasury securities, purchases of Fannie Mae, Freddie Mac and Federal Home Loan Bank debt will be conducted with the Federal Reserve's primary dealers through a series of competitive auctions via the Desk's FedTrade system. A series of purchase operations are planned over the next several weeks.

Fed to Help Meet Fund Redemptions, Buy Agency Debt

Bloomberg is reporting Fed to Help Meet Fund Redemptions, Buy Agency Debt .
The Federal Reserve said it will lend to banks to meet demands for redemptions from money-market mutual funds and plans to buy agency debt from primary dealers to aid financial-market liquidity.

The Fed will extend loans to banks to purchase "high- quality" asset-backed commercial paper from money market funds, the Fed said in a statement in Washington. The loans will be at the discount rate, the Fed said. The rate is currently 2.25 percent. The Fed didn't provide a size for either initiative.

Investors pulled a record $89.2 billion from money-market funds on Sept. 17, according to data compiled by the Money Fund Report, a newsletter based in Westborough, Massachusetts. The U.S. Treasury separately said today it will use as much as $50 billion from the government's Exchange Stabilization Fund to temporarily protect investors from losses on money-market funds.

The central bank said it will buy short-term discount notes issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks "to further support market functioning." The New York Fed will conduct the purchases of debt through "competitive auctions" over the "next several weeks," the district bank said in a statement.

U.S. to Protect Money-Market Funds Against Losses

Bloomberg is reporting U.S. to Protect Money-Market Funds Against Losses .
The U.S. government will set aside as much as $50 billion to temporarily protect investors from losses in money-market mutual funds caused by the meltdown of financial markets.

The Treasury will insure for a year holdings of publicly offered money-market funds that pay a fee to participate in the program. Retail and institutional funds are eligible, the department said today in a statement.

Money-market funds are considered the safest investments after U.S. Treasury debt and bank deposits because they strive to guarantee that shareholders can always get all their cash back. Confidence in the $3.35 trillion industry was shaken this week when Reserve Primary Fund became the first in 14 years to break the buck, or drop below $1 a share, exposing investors to losses on debt issued by Lehman Brothers Holdings Inc.

"They're putting up a firewall," said Paul McCulley, managing director at Newport Beach, California-based Pacific Investment Management Co. "It's the ultimate nightmare to have a run on the money markets -- that is truly the Armageddon outcome -- and they're not going to allow that to happen."

"This came just in the nick of time," Peter Crane, president of Crane Data LLC in Westborough, Massachusetts, which tracks money-market funds, said in an interview. "We were likely going to see more funds halt redemptions" and break the buck.

Bolstering confidence in money funds is more important than the danger that the move will encourage funds to make riskier investments to boost yields.

"This has got moral written all over it, but as has been case throughout crisis, now is not tine to worry about moral hazard," he said.

Putnam Investments LLC said yesterday it closed its $12.3 billion institutional Putnam Prime Money Market Fund after an undisclosed amount of withdrawals. The Boston-based company said the fund closed at $1 a share and would return all cash to investors.

Armageddon Postponed

Paul McCulley says "It's the ultimate nightmare to have a run on the money markets -- that is truly the Armageddon outcome -- and they're not going to allow that to happen." I disagree. The ultimate nightmare is this action by the Fed, the Treasury, and the SEC.

Government manipulation can never prevent financial Armageddon. In fact, government intervention and manipulation in the free markets eventually guarantees financial Armageddon.

Armageddon was not prevented, only delayed, and at taxpayer expense. More on this later this morning.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in