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Friday, August 10, 2007

Fed: "Discount Window is Open"

by Calculated Risk on 8/10/2007 09:48:00 AM

UPDATE: From Bloomberg: Fed Adds $19 Billion in Funds by Buying Mortgage Debt (Hat tip Napolean)

The Federal Reserve added $19 billion in temporary funds to the banking system through the purchase of mortgage-backed securities to help meet demand for cash amid a rout in bonds backed by home loans to riskier borrowers.

The Fed accepted only mortgage-backed debt as collateral for this morning's weekend repurchase agreement. ...

Fed funds traded above the central bank's target for a second straight day. The Fed's benchmark was 6 percent the last time fed funds opened at today's level.

After the Fed addition today, Treasuries pared their gains. Stocks dropped worldwide on speculation the losses in mortgage debt will hurt economic growth and earnings.
Fed: Discount Window is OpenClick on graph for larger image. (hat tip Brian)

From the Federal Reserve:
The Federal Reserve is providing liquidity to facilitate the orderly functioning of financial markets.

The Federal Reserve will provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee's target rate of 5-1/4 percent. In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets. As always, the discount window is available as a source of funding.
See Professor Thoma at Economist's View for an explanation of how this works. Also see Dr. Krugman's comments:
And here’s the truly scary thing about liquidity crises: it’s very hard for policy makers to do anything about them.