Armageddon Postponed 25 comments
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The 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.
From the release:
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.
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.
Bloomberg is reporting Fed to Help Meet Fund Redemptions, Buy Agency Debt.
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.
Bloomberg is also 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.
... 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.
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.
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..
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This article has 25 comments:
Bethesda, MD, September 19, 2008 – Due to the emergency action
announced by the Securities and Exchange Commission on September 18, 2008, temporarily prohibiting short sales of shares of certain financial companies, Short Financials ProShares (SEF) and UltraShort Financials ProShares (SKF) are not expected to accept orders from Authorized Participants to create shares until further notice. Unless notified otherwise, shares will be available for redemption by Authorized Participants as normal. The shares of these ProShares are expected to continue to trade in the financial markets today, but may trade at prices that are not in line with their intraday indicative values.
Media contact:
Tucker Hewes, Hewes Communications, Inc., (212) 207-9451
Stuff like this only postpones the logical outcome; but as long as the mental dwarfs from this administration think they can steer it into an 'orderly downward path' they will keep on taking more obligation.
Under the Dubya watch debt in the total financial sector has grown bigger than the entire US gross domestic product and it's exponential growth is a multiple of the GDP growths.
It is only high school math, where you learn exponential functions for the first time, that you can see: this will explode.
In case anybody is interested; yesterday the FED had a new Z1 release and one of the tables is here:
www.federalreserve.gov...
Look in the one last column; total fin sector debt. (As far as I know it, only publicy traded debt is in that flow of funds. So in reality it could be even worse but I cannot proof that.)
Remember back when you studied history in school and learned about the Roman Empire and how it grew and then failed, and the British Empire and how it grew and then failed--and thought to yourself "The United States is different; it's not going to fail (although other countries may well partially catch up)"
I am starting to change my mind about that.
I am going to file a Freedom of Information request....
At least when the market was falling I had the feeling that it would bottom (which would have been devastating) and slowly pick itself backup -this is worse
Place your bets -- hyperinflation or repudiation?
Tricky, I am betting on repudiation followed by hyperinflation.
It is a very nice position you are in: Just complaining about everything that could damage your undisclosed shorts and puts on the financials… You fail to realize that if the market crashes the way you wanted, there would be no money for you to collect from your bets… actually it might be some nice windfall for you in your records but it would be totally worthless…
I’m not sorry that you are now feeling some of the pain felt by many stock holders, when you were preaching to provoke runt at the banks…
It is not fair that taxpayers are being forced to absorb bad debts from banks' wrong bets without reaping profits. The financials made billion of dollars creating toxic mortgage derivatives and now they can offload these to taxpayers and go onto make money again? Aren't they the crooks who caused the recession we are seeing now and we are bailing them out to save our economy? I do not have problems with bailouts, but if we are going to bail them out I expect the bank to pay for their reckless bets too.
The government should set out the auction facility as a debt facility. They will take all the mortgage backed securities at a discounted value as collateral to handout loans that must be repaid within 10 years. Taxpayers are exposed to minimal risks this way and at the same time it helps to achieve the goal of injecting liquidity. Its just ridiculous that we are buying those worthless papers with cash knowing that the housing market will go down further.
It is not fair that taxpayers are being forced to absorb bad debts from banks' wrong bets without reaping profits. The financials made billion of dollars creating toxic mortgage derivatives and now they can offload these to taxpayers and go onto make money again? Aren't they the crooks who caused the recession we are seeing now and we are bailing them out to save our economy? I do not have problems with bailouts, but if we are going to bail them out I expect the bank to pay for their reckless bets too.
The government should set out the auction facility as a debt facility. They will take all the mortgage backed securities at a discounted value as collateral to handout loans that must be repaid within 10 years. Taxpayers are exposed to minimal risks this way and at the same time it helps to achieve the goal of injecting liquidity. Its just ridiculous that we are buying those worthless papers with cash knowing that the housing market will go down further.
This will be a very crucial signal.... Right now on CNN all I hear is "don't panic". I have also heard them say for months not to sell your stocks..and yet look how much people have lost!!!
Now they are telling people not to buy Gold! Whoohoo! Now I know exactly what I should be doing!!!
These idiots on TV are trying to quell a DISASTER!! They are trying to prevent a run on banks. Paulson said we were days away from ecomomic collapse while Bush and McCain were telling us "the fundamentals of the economy are strong".
I JUST DON'T BELIEVE THEM!!!
Idiots do not learn from history. The World Bank economists studied every financial crisis for a 30 year period. They concluded that in EVERY case, the length and depth of the ensuing recession was directly proportional to the amount of money the government threw at the problem to try to fix it. Our "leaders" are ignorant.
I believe it was Warren Buffet who said something to the effect that the most cosly words in the English language are "This time it will be different".
What we have here is the ignorant leading the blind.
Ron Paul for President!!!!!!!!!!!!!...
Dave