Free Republic

Forget this last post, the Federal Reserve has stepped in and settled the debate that was brewing between the White House & Congress. Basically, the student loan companies need someone to buy some loans so they can have enough reserve cash to offer more loans in the future. Due to high default rates, high inflation rates, and overall low student loan return rates, no investors are showing up for the normal bond auctions. Part of this, of course, is due to an over-correction by Congress during the financial boom period of 2004 to 2006. By the time legislation had passed...

Lehman slides 9% despite denial of market talk Renée Schultes and Stephanie Baum 28 Mar 2008 Lehman Brothers was yesterday prompted onto the increasingly familiar territory faced by several financial institutions, in publicly acting to quash market speculation about its liquidity position, which wiped almost 9% off its share price yesterday. In a statement Lehman Brothers said: “There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short-sellers of our stock that have an economic self-interest.” Statements aside, Lehman Brothers closed down 8.9% at $38.71 yesterday. At...

March 24, 2008 Loss of liquidity, not insolvency, caused credit crunch Anatole Kaletsky: Economic view Did last week mark the beginning of the end of the credit crunch, or merely the end of the beginning? The answer depends on another question, which was much in the news over the weekend: will the Bank of England and the Federal Reserve start lending against mortgages, essentially without penalty and without limit, as the European Central Bank has done since last year? This may seem an esoteric technical question, but it will determine whether the credit crunch can be resolved merely by tweaking...

With all the furor over the possibility of a high-speed financial meltdown, it’s been easy to forget that we still have the problem of a weak real economy, and a Fed that is having a hard time getting traction. And as I’ve pointed out before, we’re quite close to liquidity trap territory: the point at which open-market purchases of Treasury bills, the normal way monetary policy operates, don’t have any effect because the T-bill rate is near zero. , today’s morning update: as of 8:49, the one-month T-bill rate is 0.539, the 3-month rate 0.728.

Ask the oil producers to rescue Wall Street By Anil Kashyap and Hyun Song Shin Published: March 19 2008 18:43 | Last updated: March 19 2008 18:43 The fire sale of Bear Stearns, the US investment bank, brings the credit crisis to a new, more dangerous phase. Many market participants seem to be hoping for a short-term miracle from the Federal Reserve to end the turmoil. They will be disappointed. Bear Stearns could not borrow because its creditor banks and counterparties use modern risk management systems that require them to hold enough capital to meet potential losses on their portfolios....

Major indexes open up 2 pct on Fed move Tuesday March 11, 9:41 am ET NEW YORK (Reuters) - The three major stock indexes opened 2 percent higher on Tuesday as the Federal Reserve announcement of a new effort with other central banks to add up to $200 billion to strained credit markets boosted investor optimism. The Dow Jones industrial average (DJI:^DJI - News) jumped 268.66 points, or 2.29 percent, to 12,008.81. The Standard & Poor's 500 Index (^SPX - News) was up 27.18 points, or 2.13 percent, at 1,300.55. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was up 56.41...

Thus far, the Fed's recent, sharp interest-rate cuts have served mainly to push down yields on risk-free Treasuries, the dollar's value in currency markets, and pushed up the prices of gold and other commodities. Investors have fled for these safe havens while depressing the markets for so-called risk assets, set off the rolling thunder of margin calls, which beget more forced selling and then more margin calls. But beyond hedge funds and leveraged mortgage real-estate investment trusts, the market's risk aversion now has investors shunning even what had been considered gilt-edged assets -- mortgage-backed securities issued by Fannie Mae and...

The Federal Reserve on Friday announced measures to ease liquidity pressures in stressed financial markets. The Fed said it would increase amounts in its Term Auction Facility auctions March 10 and March 24 to $50 billion each, a rise of $20 billion from the amounts announced for each of these auctions. The Fed also said it would initiate a series of term repurchase transactions that are expected to cumulate to $100 billion.

Insight: True impact of mark-to-market on the credit crisis By Paul J Davies Published: February 28 2008 16:25 | Last updated: February 28 2008 16:25 Back in April 1993 the eyes of the world were on the beseiged Balkan town of Srebrenica, which the UN declared a safe haven for Bosnian muslims, and on Northern Ireland, where secret talks between leaders from rival factions kick-started a tentative peace process. In the same month, a less-noticed development saw US accountancy regulators approve a rule that paved the way for today’s widespread use of mark-to-market accounting standards. This rule, which forced US...

NEW YORK (CNNMoney.com) -- A growing number of top economists believe that the U.S. economy has now toppled into recession. Alarm bells were set off Tuesday by a grim report on service businesses, which make up the majority of the U.S. economy. The Institute of Supply Management said that activity in the service sector declined for the first time in nearly five years. This report also indicated that employers are cutting staff. The survey covers the retail, transportation and health care industries as well as hard hit areas such as finance, real estate and construction. Some economists argued that the...

Here is why this move (as well as the next two rate cuts) will fail - the problem with world markets today is not liquidity, but capital. The difference goes beyond nomenclature - while liquidity is long form for money flows, capital is the ability of banks to sustain the losses from such lending. For example, if you make a billion dollars of loans to individuals and expect to lose about 1%, you would set aside double that, say $20 million, as "capital", and then calculate your return on those $1 billion in loans as a proportion to the capital...

Derivative liquidity crisis ‘to continue’ By David Oakley in London Published: November 23 2007 23:38 | Last updated: November 23 2007 23:38 The world’s biggest derivatives markets could suffer serious liquidity problems until the end of the year, bankers have warned. As worries over the health of the financial system weigh heavily on banks and funds, the vast over-the-counter markets in equity, credit and interest rate derivatives have seen trading volumes slow to a trickle. Hawkins, equity derivatives strategist at Lehman Brothers, said: “There is a huge amount of uncertainty out there with extreme volatility. If you have made money...

WASHINGTON -- Pessimism is a contagious affliction, born by fears of some cataclysmic result that is based on little or no compelling evidence -- usually in the face of a pile of facts to the contrary. That's the illness that spread through Wall Street last week, triggered by the continuing turbulence in the housing and credit markets amid fears that the situation is only going to get worse and drag the rest of the economy down with it. Some of the gloomiest traders on Wall Street have begun, once again, to talk about a recession, the dreaded r-word that rears...

Financial markets were roiled again yesterday, with the Federal Reserve and other central banks stepping in to bolster liquidity in the wake of the subprime credit seizure. Serving as lender of last resort in these conditions is the proper function of central banks. But going further--with an emergency rate cut, as some in the market seem to be anticipating or hoping for--carries the risk of introducing even greater moral hazard into the financial system. It's worth recalling in this connection that the root cause of this credit correction was the Federal Reserve's willingness to keep money too easy for too...

Daily Forex Commentary By Jack Crooks Quotable "Because programming content needs to be filled and research reports must be written, a variety of institutional and cultural pressures make gurus profess to knowledge of the markets that no one can possibly have. Every morning they are expected to look at the future when, much of the time, they are merely misreading the present. The endless and often random oscillations of the stock market can make every market observer's ruminations seem right or eventually right. And on the occasion they may be wrong, they are never in doubt." - FJ Chu FX...

...Our latest research shows that American consumers are out of cash and up to their eyeballs in debt. However, it is possible for consumers to keep pushing the economic envelope. The growth of real-estate based debt is slowing and is causing lower consumer liquidity. The slowdown in household mortgage debt flow SHOULD lead to a recession - BUT the Federal Reserve is determined to prevent one. The latest economic statistics show that consumers depended on new debt for 90% of their cash flow during 2006. Any decline in debt flow will constrain liquidity and should cause a decline in the...