Bernanke Invents a New Weapon

Do you know your TAF from your TSLF? Frankly, it doesn't matter if you don't. Think of Ben Bernanke as action hero: every time the credit markets seize up and threaten to bring down the US financial system, he pulls out a new weapon. First it was rate cuts, then it was the Term Auction Facility, now it's the Term Securities Lending Facility, or, as Paul Krugman calls it, "an attempt to give the market a REALLY BIG slap in the face."

The markets are up today, of course: they love it when Bernanke fires up his helicopter. And I'm actually reasonably hopeful that this latest liquidity injection* might work for more than a few days, if only because the securities hit in the latest credit crunch (agencies, municipals bonds) are genuinely remote from any real risk of default.

The FT has links to all the other central banks releasing statements at the same time; Mish, meanwhile, worries that with this latest action Bernanke is "running out of bullets". Again, I'm slightly more sanguine: the Fed seems to be able to cast new bullets at will. They're not enough to prevent a recession, of course. But they might at least be enough to keep the markets functioning relatively smoothly on the way down.

*Yes, a liquidity injection. The action doesn't increase the total money supply - it's what's known as "sterilized" - but it does increase the amount of liquid cash in the banking system.

Comments

[dieuwer:]

"TSLF", "Liquidity injection"... what a joke!
HYPERINFLATION! That is what it is: PRINT-MONEY-BUY-DOW, PRINT-MONEY-BUY-SP500, PRINT-MONEY-BUY-NASDAQ...

2008 Mar 11 03:29 PM

[Just Say Whoa!:]

The market loves a REALLY BIG slap in the face, especially first thing in the morning!

Turning the Fed into Wall Street’s pawnbroker?

Another BRILLIANT idea from the *geniuses* running things for the last 27 years.

REAGANOMICS! REAGANOMICS! REAGANOMICS!

2008 Mar 11 03:46 PM

[Solution:]

When government tries to save the economy, you guys are pulling the tail. You are no better then terroists.

2008 Mar 11 04:03 PM

[Tony Soprano:]

We're having Carmela's lasagne with basil leaves and peaches in red wine for dessert tonight. I told her we got some good news today and we need to celebrate a little.

All kidding aside, I like what Rich Santelli said this early morining: "This is huge."

This is not the absolute end to this crisis but its a big step in the right direction.

What fantastic timing by the Fed. Just when, from a technical point, the Fed unleashed their time bomb. What happened to the crasendo to the down side? Will it still happen?

2008 Mar 11 04:21 PM

[GKM:]

Hmmm, more bailouts for the creditors who didn't price their risk appropriately in the first place. As Borat says "seems like a great idea..................... Good job Uncle Ben.

Now what are you going to do about the plummeting house prices that don't match to household debt levels? Are you going to print enough money to completely devalue the debt (i.e. dollar) and inflate housing prices to align? Then I guess the run in commodities isn't over. Seems like a great idea.....................

2008 Mar 11 06:04 PM

[Bylo-:]

"...they might at least be enough to keep the markets functioning relatively smoothly on the way down."

Since the Fed has no way to control the difference between the housing value and the debt owed on it, I guess that's about all we can hope for, isn't it?

Look out below!

2008 Mar 11 07:52 PM

[Krakatoa:]

Fed Fool Nobody.... people see they running naked

2008 Mar 12 03:09 AM

[nukldrager:]

I thought it was called the magic window. You know the one where the fed chairman passes a slip of paper through with a number on it and back out from thin air comes a check for some troubled institution that's too big to stay in trouble. Shell's or shekels or shillings, I'm sure nothing's really changed, and everything is just fine.

2008 Mar 12 09:03 AM

[robert99:]

US Citizen: Get a life - It's financial commentary for Pete's sake.

2008 Mar 12 10:00 AM

[buyitcheap:]

don't worry - we can't print money and buy your crappy no value second and third mortgages underlying your CDOs. Hey, when the CDS market goes into the crapper we're going to print a couple hundred trillion and buy those too then we'll be one big happy government sponsored entity world. AAAGGH!!

Let a few banks fail!!!!! and put lenders in jail... (to the tune of Bush lied people died...)

2008 Mar 12 02:36 PM

[The GreatDe...:]

Just a Test

2008 Mar 17 04:23 PM