Fed expands auction, accepts wider collateral ( bonds backed by auto loans and credit cards.???)

MarketWatch ^ | May 2, 2008 10:51 a.m. EDT | Steve Goldstein, MarketWatch

[Ernest_at_the_Beach]

NEW YORK (MarketWatch) -- The Federal Reserve, along with other central banks, said Friday that it was increasing the funding it is providing to banks and announced that, for the first time, it was willing to accept bonds backed by auto loans and credit cards.

"In view of the persistent liquidity pressures in some term funding markets, the European Central Bank, the Federal Reserve and the Swiss National Bank are announcing an expansion of their liquidity measures," the Fed said in a statement.

The Fed took the move in an attempt to flood the market with supply and lower short-term lending rates, such as the London interbank offered rate, or Libor.

The U.S. central bank announced an increase, to $75 billion from $50 billion, in the amounts auctioned to eligible depository institutions under its biweekly Term Auction Facility, beginning with the auction on May 5.

This increase will bring the amounts outstanding under the TAF to $150 billion.

The move to expand the TAF was widely anticipated because of strong demand for loans through the program. See full story.

"The program is now reaching a magnitude where it can play a significant role in plugging the gap between the remaining demand for unsecured term funding in the bank market and the latest decline in supply following the run on Bear Stearns," wrote Lou Crandall, chief economist for Wrightson ICAP.

The expansion was "probably marginally disappointing because there was a widespread expectation ... that the Fed would extend the term of at least some TAF auctions to three months," wrote Stephen Stanley, chief economist for RBS Greenwich Capital.

[Ernest_at_the_Beach]

The TAF, announced on Dec. 12, was followed in March by the creation of several other Fed lending programs targeted at different sectors of the credit markets.

All told, the Fed has now offered to lend up to $462 billion in cash and Treasurys to the markets, in addition to the nearly unlimited funds available through the discount window and the primary c

[Ernest_at_the_Beach]

Auto Loans and Student Loans....??

[Shermy]

Funny money financial instruments keep coming along.

What next, are we going to be imposed upon with a carbon credit trading scheme, and when that collapses, which it must, the Fed will bail them out too?

[Red Badger]

IZZIT just me or does this sound like idiocy?.......

[underground]

Yup the federal reserve will just buy up all the debt in this country so we won't have to worry about all the bums who don't pay up, we'll just re-distribute the losses to the value of the dollar. They're talking about giving all the student loans to the department of education or at least allowing the lenders to trade their bad loans for "good" government securities.

How long can we trade bad assets for good ones (treating them as equal) before the good ones become bad? The dollar has all of the respect of a sub-prime mortgage portfolio.

Government needs to step back and allow the failures to fail... we can't afford to publicly prop up every business venture that loses.

[Ernest_at_the_Beach]

Well....it is a BIG CHANGE....

[Ernest_at_the_Beach]

Well,...first you loan the money...then you put in regulations so that bad loans are reduced.,...must keep the economy going cause that is the worst of all possible events....

[savedbygrace]

What’s next - sell the furniture?

[Attention Surplus Disorder]

http://events.startcast.com/events/199/B0003/#

per Don Coxe (who gets my highest reco on market commentary; updated every Friday)

According to Don, S&P has “revised” their view that the recovery against face value for AAA SENIOR TRANCHE CDO debt will be 60% = a 40% loss. The VERY BEST bonds, then will suffer 40% losses. Hey, no big deal, right?

For bonds rated single A and lower, they calculate recovery rates at zero. As in ZERO. Pretty darn remarkable. As Don says, these recovery rates are comparable to C- graded bonds during the Milken era.

US market transparency and financial accounting is taking a giant body blow here, and it is going to result in much higher LT rates. The forebearance being given to the money center banks is nothing more than sanctioned financial fraud. Which will ultimately hurt housing and force Bernanke to flood yet more dollars into the banking system. So the banks can daytrade stocks, because they sure aren’t lending. All this will accrue to the US taxpayer.

[WilliamofCarmichael]

Headline?

FED to accept securitized IOU's Tuesdays
We'll gladly do it, says official.

[Orange1998]

Nope throwing in the kitchen sink. The lenders are looking for a suckers to sell the junk, it appears they have found one.

[nitzy]

My friends and I have been trading a box of fecal matter amongst ourselves for the past several years (strictly on credit of course) The specimen is rumored to be from a famous celebrity. It was first sold for $1. After 3 years of being traded back and forth between our group of friends, the value has rocketed to $2,000,000.00. I am the current holder of this valuable security. I wonder if the Fed will let me use it to secure a $2,000,000 loan for a new house in Hollywood?

[Ernest_at_the_Beach]

I predict they get new regulations....

See this:

Feds to tighten rules on credit card companies-New rules aimed to curb abusive credit card practices

[SunkenCiv]

Thanks E.

the Federal Reserve and the Swiss National Bank are announcing an expansion of their liquidity measures

I see some holes in this plan.

[Ernest_at_the_Beach]

Related article:

Fed's bank lending programs - next on to-do list?

*****************************EXCERPT*******************

Demand for bank loans drives speculation one program could expand

By Laura Mandaro, MarketWatch
Last update: 5:07 p.m. EDT May 1, 2008

SAN FRANCISCO (MarketWatch) - The Federal Reserve's work setting interest rates is done, for at least the next eight weeks. Next on the central bank's to-do list: whether to expand some of its efforts to pump cash into the still-struggling parts of financial markets.

Since December, the Fed has created new programs to lend about $400 billion to banks and securities dealers. These have been aimed at getting funds moving in parts of the credit market -- including mortgage-backed securities, overnight bank loans and commercial paper borrowings -- that seized up after lenders and investors balked at taking on new risk.

The most popular of this alphabet soup of programs has been the Term Auction Facility program, or TAF, which has been providing banks up to $100 billion every month in 28-day loans against a wide variety of collateral. For the last five months, these auctions have been over-subscribed -- meaning the country's banks have wanted to take out more loans than the central bank has offered.

This strong demand, which probably reflects that banks are still wary of lending to each other or are hoarding their own cash, has encouraged speculation that the Federal Reserve could expand the TAF as early as this month.

"For other facilities, the size of the existing program is large enough to meet any demand," said Michael Feroli, an economist at J.P. Morgan.

"Given all that, I'd expect, if anything expanded, it would be the TAF."

[steve86]

Sound a little third world to you? I mean like subprime third world.

[Marine_Uncle]

“Auto Loans and Student Loans....??” A chicken in every pot.

[Ernest_at_the_Beach]

Didn’t FDR make a promise like that....he was revered....

[ConservativeMind]

That list only appears to further make it difficult for credit card companies to remove or punish bad credit risks.

How does that help stop the FED from bailing out companies?

[TruthConquers]

More on Student Loans:

http://www.bloomberg.com/apps/news?pid=20601109&sid=a1ctn1Xfq5Do&refer=home