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Where Does the Money Go ?

CaptnKirk

CaptnKirk

Lifer
Today the FED crammed some $ 41 Billion - with a 'B' into the Stock Market

Waa - La:

Investors were unswayed when the Fed pumped $41 billion into the U.S. financial system,
one of its largest cash infusions since the credit crisis began in the summer.
This increases the amount of money banks have to lend, and helps improve liquidity.
In the past, such an action helped soothe the market, but that was not the case Thursday.


Which was followed by a DROP of 362 Points.

O.K. where did it go?

Was this a 'Harvasting' of the US Treasury by a well connect group of manipulators?

Do you think Berferd and Gretchen in Horsebackistan got in on the deal, or was this the Gentlemen's Club.

The Fed has $ 41 Billion to put on the Wheel of Fortune for a single spin - when the Congress won't pass a Childrens Health Care bill ?
Something is Terminally wrong with this picture.

Way back when - Yesterday was it, that they gave away another 1/4 Point interest ?

Like a Financial Black Hole - to all but the special few.
 
Originally posted by: CaptnKirk

Investors were unswayed when the Fed pumped $41 billion into the U.S. financial system,
one of its largest cash infusions since the credit crisis began in the summer.
Click to expand...

I wouldn't be so sure about that $41 billion being the largest - I can't remember the last numbers but over a span of two to three days it was well over $100 billion. Same numbers with central banks around the world . . .

It's done to manipulate overnight rates. They want commercial paper to trade at their specified bank rates. Markets get antsy and the overnight rates jump fifty basis points or more above a central banks target rate - and the response (the last time the Fed used repurchase agreements) by the central banks is needed to calm market jitters. . . .
 
They just keep the printing presses at the Mint running overnight a few weeks.
Oh, and what is the result of just printing money?
Lets ask some Germans from the 1930's
 
Originally posted by: CaptnKirk
Today the FED crammed some $ 41 Billion - with a 'B' into the Stock Market

Waa - La:

Investors were unswayed when the Fed pumped $41 billion into the U.S. financial system,
one of its largest cash infusions since the credit crisis began in the summer.
This increases the amount of money banks have to lend, and helps improve liquidity.
In the past, such an action helped soothe the market, but that was not the case Thursday.


Which was followed by a DROP of 362 Points.

O.K. where did it go? See above bolded portion
Click to expand...

The answer to your question is contained within your post.

The $41B will be distributed by the banks as loans to borrowers, whether individuals or corporate etc.

Comparing data of money loaned to the different sectors (e.g., consumers v biz), before & after the infusion would provide insight to where it went in the aggregate.

Fern
 
Originally posted by: Fern
Originally posted by: CaptnKirk
Today the FED crammed some $ 41 Billion - with a 'B' into the Stock Market

Waa - La:

Investors were unswayed when the Fed pumped $41 billion into the U.S. financial system,
one of its largest cash infusions since the credit crisis began in the summer.
This increases the amount of money banks have to lend, and helps improve liquidity.
In the past, such an action helped soothe the market, but that was not the case Thursday.


Which was followed by a DROP of 362 Points.

O.K. where did it go? See above bolded portion
Click to expand...

The answer to your question is contained within your post.

The $41B will be distributed by the banks as loans to borrowers, whether individuals or corporate etc.

Comparing data of money loaned to the different sectors (e.g., consumers v biz), before & after the infusion would provide insight to where it went in the aggregate.

Fern
Click to expand...

Actually,

The Federal Reserve Bank of New York took the action in three separate operations in so-called repurchase agreements to provide liquidity. It marked one of the largest single-day operations since the mid-year credit market turbulence.

The US central bank typically buys billions of dollars worth of securities from major banks, pumping extra cash into the banking system, which the banks are obliged to repurchase at a later date.
Click to expand...

I don't play in commercial paper but I will guess that the repos by the Fed were bundles of mortgage-backed securities that were poised to trade substantially higher than the Fed wanted. They were pulled from the market by the Fed most likely at the higher rate and will be discounted effectively when repurchased in the future.

This ain't about traditional bank loans - this is about maintaining targeted central bank rates in financial markets. The securities in the repos were 'liquid' but most likely were going to trade higher putting unwanted pressure on desired rates.
 
Originally posted by: Fern
Originally posted by: CaptnKirk
Today the FED crammed some $ 41 Billion - with a 'B' into the Stock Market

Waa - La:

Investors were unswayed when the Fed pumped $41 billion into the U.S. financial system,
one of its largest cash infusions since the credit crisis began in the summer.
This increases the amount of money banks have to lend, and helps improve liquidity.
In the past, such an action helped soothe the market, but that was not the case Thursday.


Which was followed by a DROP of 362 Points.

O.K. where did it go? See above bolded portion
Click to expand...

The answer to your question is contained within your post.

The $41B will be distributed by the banks as loans to borrowers, whether individuals or corporate etc.

Comparing data of money loaned to the different sectors (e.g., consumers v biz), before & after the infusion would provide insight to where it went in the aggregate.

Fern
Click to expand...

Actually,

The Federal Reserve Bank of New York took the action in three separate operations in so-called repurchase agreements to provide liquidity. It marked one of the largest single-day operations since the mid-year credit market turbulence.

The US central bank typically buys billions of dollars worth of securities from major banks, pumping extra cash into the banking system, which the banks are obliged to repurchase at a later date.
Click to expand...

I don't play in commercial paper but I will guess that the repos by the Fed were bundles of mortgage-backed securities that were poised to trade substantially higher than the Fed wanted. They were pulled from the market by the Fed most likely at the higher rate and will be discounted effectively when repurchased in the future.

This ain't about traditional bank loans - this is about maintaining targeted central bank rates in financial markets. The securities in the repos were 'liquid' but most likely were going to trade higher putting unwanted pressure on desired rates.

And from what I can tell this is the biggest one day 'infusion' since the $50 billion after 9/11.
 
The Children's Health bill has nothing to do with this, so I don't see anything wrong with the picture. Also, I hope Bush vetoes it again..
 
Originally posted by: heyheybooboo
Originally posted by: Fern
Originally posted by: CaptnKirk
Today the FED crammed some $ 41 Billion - with a 'B' into the Stock Market

Waa - La:

Investors were unswayed when the Fed pumped $41 billion into the U.S. financial system,
one of its largest cash infusions since the credit crisis began in the summer.
This increases the amount of money banks have to lend, and helps improve liquidity.
In the past, such an action helped soothe the market, but that was not the case Thursday.


Which was followed by a DROP of 362 Points.

O.K. where did it go? See above bolded portion
Click to expand...

The answer to your question is contained within your post.

The $41B will be distributed by the banks as loans to borrowers, whether individuals or corporate etc.

Comparing data of money loaned to the different sectors (e.g., consumers v biz), before & after the infusion would provide insight to where it went in the aggregate.

Fern
Click to expand...

Actually,

The Federal Reserve Bank of New York took the action in three separate operations in so-called repurchase agreements to provide liquidity. It marked one of the largest single-day operations since the mid-year credit market turbulence.

The US central bank typically buys billions of dollars worth of securities from major banks, pumping extra cash into the banking system, which the banks are obliged to repurchase at a later date.
Click to expand...

I don't play in commercial paper but I will guess that the repos by the Fed were bundles of mortgage-backed securities that were poised to trade substantially higher than the Fed wanted. They were pulled from the market by the Fed most likely at the higher rate and will be discounted effectively when repurchased in the future.

This ain't about traditional bank loans - this is about maintaining targeted central bank rates in financial markets. The securities in the repos were 'liquid' but most likely were going to trade higher putting unwanted pressure on desired rates.

When you "trade higher than the fed wanted" I assume you are referring to interest rate, resulting in a deeper discount (thus lower $ value) than teh fed wanted?

And from what I can tell this is the biggest one day 'infusion' since the $50 billion after 9/11.
Click to expand...

I think your information more addresses the mechanism of how the fed went about increasing the liquidity to bank, I was addressing his question which is essentially what are the banks going to do with it.

Increasing liquidity to banks allows them to pursue their business, which is loans. Too many borrowers chasing too little liquidity results higher interest on loans and fewer borrowers (lower rated potential borrowers likely not getting needed loans).

There are many fed rules on banks, I no longer keep up with them. But in general my understanding remains that the amount a bank is allowed to lend is dependant (in general) on a ratio of their assets (simplification). The declining value of mortgage back sercutities in their portfolio would result in a decreased lending limit for the bank, thus tighter credit.

I believe this fed step eases that problem, eventually resulting in more loans at the consumer level (whether they be individuals or businesses).

Fern
 
Originally posted by: Fern

When you "trade higher than the fed wanted" I assume you are referring to interest rate, resulting in a deeper discount (thus lower $ value) than teh fed wanted?

And from what I can tell this is the biggest one day 'infusion' since the $50 billion after 9/11.
Click to expand...

I haven't paid attention to this one and am too lazy to go out and do any research so here goes . . . 😀

Let's say there was some paper to be traded to level accounts between financial institutions. A financial institution probably said , "Okay. I'll take your paper at 5.35%"

The Fed said, "Holy crap. Our target rate is 4.5%. This higher rate could lead to market instability, higher rates and reduced liquidity in the financial markets." So the Fed purchased the paper with an agreement with the financial institution that it would be 'repurchased' in X days at the target rate.

It is almost certain to involve bundles of mortgage-backed securities that were very difficult to value. There were probably some good loans - and an undetermined number of not-so-good loans. That is why a 'premium' or higher rate was slapped on it.

$41 billion is a great deal of money but it's roughly the same amount that was done in August - except it was over 2-3 days. The exception in August was in Europe - if I remember correctly central banks pumped in over $100 billion in repos over a few days.
 
^ That's that what I thought you were saying (too "high" refers to rate not $ amount).

I.e., Agreed

Fern
 
Our economy is almost $14 trillion, so an addition of $41 billion is not a big deal. This amounts to almost a .003 increase in money the money supply. Not exactly a big move in money supply.
 
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