Busted: Bankers and The Global Economy

February 15, 2008

Auction Preserves Financial Markets

Filed under: banking, central bank, federal reserve, government, investment, money — Tags: , , , , , , , , — digitaleconomy @ 12:03 pm

In today’s speech at a capital markets conference, Frederic Mishkin openly admitted recessionary pressure in the financial markets since last summer. He also avoided the “r” word. The Fed is notoriously slow at admitting anything negative and the Governor’s speech is no exception. He admitted that liquidity in bank funding deteriorated substantially last year.

To address these pressures, the Federal Reserve introduced a new policy tool called the Term Auction Facility (TAF). With this tool, the Federal Reserve auctions a pre-announced quantity of credit to eligible borrowers for a term substantially longer than overnight.” Each auction has involved a term of one month. He finally admits that banks that participate are required to be in generally sound financial condition. Collateral for the loan is required. While this is not surprising, it is good to hear confirmation that attempts at sound judgment are being exercised despite the hysteria of the U.S. government.

Thus far, the TAF appears to have been largely free of the stigma associated with borrowing at the discount window, as indicated by the large number of bidders and the total value of bids submitted.” This is an accurate comment. However, the fact of the matter is that the Fed holds the bidding process and the information as confidential. By the admission of the Fed, this provision is what is stabilizing the U.S. banking economy. All of this is provided to prevent ongoing financial disruptions in the banking and finance marketplace.

I advise the little guy to continue to watch his/her deposits and investments very carefully. The industry is thinking of itself and outside perception. You would be advised not lull yourself into a false sense of security regarding your monies and investments.


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