Bankruptcy

Federal Reserve Continues to Pump Money into Economy

By J. Michael McBride

The Federal Reserve continues its program of injecting money into the economy. This is accomplished in several ways. The first way referred to in the quotes below gets money to banks with the idea that the banks will then loan it out to customers. Of course, that may or may not be the result. That is, no one can make the customers borrow money if their mood has soured to the point that they do not want more debt.

Also, the banks themselves may be so concerned about the bank regulators and how they categorize loans, that they may have tightened up on lending to the point that whether they have the money to lend or not, no one can qualify for any new loans. Finally, the money meant to be the source of new loans may instead be covering losses on old loans. But nonetheless, the Fed has planned 3 more auctions of debt.

"The Fed said it will conduct three auctions in June, with each one making $75 billion available in short-term cash loans. Banks can bid for a slice of the available funds. It would mark the latest round in a program that the Fed launched in December to help banks overcome credit problems so they will keep lending to customers.
…
Also Thursday, the Fed -- in a separate program -- auctioned $16.4 billion in safe Treasury securities to investment firms, another effort aimed at easing credit problems. That operation drew bids less than the $25 billion being made available, which could be viewed as a sign of some improvement in credit conditions.

In exchange for the 28-day loans of Treasury securities, bidding firms put up as collateral more risky investments, including certain shunned mortgage -backed securities and bonds backed by federally guaranteed student loans. This program began March 27."

Here is a link to the entire article:
http://biz.yahoo.com/ap/080529/fed_credit_crisis.html?.v=3

Michael

Full post as published by Texas Lawyer Blog on May 29, 2008 (boomark / email).