Everything is under control The WSJ
Remember FDR’s alphabet soup? It consisted of a series of government programs intended to end the Great Depression. It gave birth to the WPA (the Works Progress Administration), the CCC (Civilian Conservation Corp), and household names such as the TVA, the FDIC and the SSA – the spenders stewards of our nation’s Social Security program.
Today’s Great Depression has spawned a new alphabet soup: the TAF, PDCF and TSLF, in addition to a huge expansion of the FHA – also an FDR creation. The housing bill, signed into law today, grants unlimited power to the U.S. Treasury, our little piggy bank here at home, to lend money to Fannie Mae and Freddie Mac or buy their stock should they need it, through the end of 2009. Nobody anybody? knows how much this will cost, or whether our piggy bank bazooka can really sustain it.
Also today, the Fed announced that it was expanding its newly created Term Auction Facility (“TAF”) its Primary Dealer Credit Facility (“PDCF”) and its Term Securities Lending Facility (“TSLF”), which provides liquid Treasury securities for 28 days in return for harder-to-trade trash collateral, like mortgage bonds, in order to ease the credit market strains.
The Fed said it was extending the PDCF and TSLF programs through January 30. They had been due to expire in mid-September. The PDCF and TSLF were launched in March after the near bankruptcy of Bear Stearns and it marked the first time since the Great Depression that the Fed had opened its emergency lending window to investment banks.
The Fed also said it would offer longer-term loans to banks under its Term Auction Facility, introducing 84-day offerings in addition to its current 28-day loans. The TAF was established in December.
The Fed also gave the go-ahead to the New York Federal Reserve Bank to auction options to primary dealers to borrow Treasury securities to ease funding pressures implosions that have been building at each quarter end. The end of the first quarter was when the Auction Rate Securities market collapsed and trading in municipal bonds almost came to a halt after some securities firms completely sh*t themselves pulled their bids.
The Fed said it acted didn’t know what else to do “in light of continued fragile circumstances in financial markets,” and said it would close down the lending program once it determined duck! credit market conditions were no longer “unusual and exigent.” The moves were coordinated help! with the ECB and SNB (Swiss National Bank), which both announced similar programs.
And yesterday, the U.S. Securities and Exchange Commission extended its policy of sanctioned manipulation crack-down on abusive short-selling in the stocks of 19 banks and investment banks.
Despite inflationary pressures, no rate hikes in the offing. We’re just not in Kansas anymore:
“Until the Fed starts scaling back or eliminating its special liquidity-providing measures, rate hikes would create a glaring policy inconsistency — conducting measures that effectively lower borrowing rates while simultaneously raising them,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, wrote in a note to clients.
Disclosure: Almost nothing else can go wrong. Do you need me to define a double entendre?
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