Bankruptcy

Fed Continues to Prime the Pump at a Furious rate

By J. Michael McBride

Not surprisingly, given its past actions and the strength of the recent reversals in the market, but the Federal Reserve has added another 70 billion in reserves to the banking industry. Banks appear to be hoarding cash while demand increases. “The Federal Reserve added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, to reverse a surge in borrowing costs sparked by the collapse of Lehman Brothers Holdings Inc.” The Fed also expanded the type of collateral it would accept, to include less strong stock. “The Fed widened the collateral it accepts yesterday for loans to securities firms in an effort to help Wall Street weather Lehman's bankruptcy. …The Fed added $50 billion in temporary reserves to the banking system when it arranged overnight repurchase agreements, or repos, at 11:50 a.m., after providing $20 billion earlier.”

The question remains what will the unintended consequences be from all of this activity, most of which either has never been done before or if it has been done, it was during the great depression. Clearly, over the years the dollar has declined in value significantly; however, the dollar has recently reversed and may be increasing in value as the best alternative currency to own in a crisis.

Here is a link to an article on this subject: http://www.bloomberg.com/apps/news?pid=20601087&sid=azabvVyocFac&refer=worldwide

Michael

Full post as published by Texas Lawyer Blog on September 15, 2008 (boomark / email).