Sign In
SHARE
Chart of the Day: Fed Lending
WCW has this chart, and says of it:
Any time that a properly normalized series starts rivaling the freaking Depression, you have to worry.
Worry? Yes, I'm worried. But not so much because banks are borrowing from the Fed again after a long Great Moderation in which they didn't. Historically, the Fed has been happy to act as a counterparty for banks; the fact that it didn't for a while is no reason why it shouldn't right now, when it's needed.
When fears of counterparty risk roil the markets, it's great that the Fed can step in with its zero counterparty risk and act as the counterparty of last resort. I am slightly worried about this weekend's announcements, which seem to make the Fed the counterpart of first resort: that spike might yet grow significantly larger.
The Fed has been reasonably imaginative in its response to this crisis. Think of what would have happened if it had stuck to its standard Fed funds instrument: it would have cut interest rates, but the discount rate would still be 100bp north of Funds, and investment banks would have no access to it in any event. The result would have been chaos in the markets: everybody refusing to trade with everybody else.
Instead, the Fed stepped in and said, in effect, we're here to trade with, we have liquidity, come and get it. Once the money starts flowing around the financial system again, it might be able to take a few quiet steps out of the game. But for the time being, anything which encourages banks to trade with each other and trust each other is a good thing. If it's really lucky, the Fed might not even have to take any losses on that $30 billion of non-recourse financing that it gave to Bear Stearns yesterday.
Loading...
Thank you for registering as a Portfolio.com Insider. Your comment has been added.
Create Your Public Profile
- The Times' Rorshach Geithner Story
- Apr 27 2009 9:26AM EDT
- Sinking Animal Spirits
- Apr 27 2009 8:45AM EDT
- Counter-cyclical Urban Policy
- Apr 26 2009 10:00AM EDT
- Be Your Own Counterfeiter
- Apr 26 2009 9:36AM EDT
- Being Tim Geithner
- Apr 25 2009 12:37PM EDT
- Notes From a Press Conference Naif
- Apr 25 2009 9:41AM EDT
- What Good is the News?
- Apr 25 2009 8:32AM EDT
- Stressful Enough
- Apr 24 2009 2:29PM EDT
- Not Regretting the Pound
- Apr 24 2009 1:09PM EDT
- Introducing the New Ford Squeeze
- Apr 24 2009 9:47AM EDT
- Non-Economic Questions of the Day
- Apr 24 2009 9:12AM EDT
- The Stress Test Blind Alley
- Apr 24 2009 8:36AM EDT
- Happy Hour
- Apr 23 2009 9:40PM EDT
- Recovery Without Rebalancing
- Apr 23 2009 6:13PM EDT
- The Shape of Your Recession
- Apr 23 2009 5:11PM EDT
Archive
Categories
Links
- Email Ryan Avent
- Econospeak
- Financial Crookery
- The Epicurean Dealmaker
- Naked Capitalism
- Alphaville
- Marginal Revolution
- The Panelist
- FP Passport
- Overcoming Bias
- Andrew Leonard
- Barry Ritholtz
- Brad Setser
- Carbon Tax Center
- Calculated Risk
- Greg Mankiw
- Free Exchange
- Dean Baker
- Alexander Campbell
- Kash Mansori
- The Bayesian Heresy
- A Fistful of Euros
- John Quiggin
- Michael Mandel
- Lance Knobel
- Mark Thoma
- Dan Gross
- Curbed
- Streetsblog
- Chris Anderson
- Deal Journal
- MarketBeat
- DealBook
- DealBreaker
- Carl Bialik
- Michelle Leder
- Brad DeLong
- Ultimi Barbarorum
