Bernanke at NABE:
"As you know, financial systems in the United States and in much of the rest of the world are under extraordinary stress, particularly the credit and money markets. The losses suffered by many banks and nonbank financial firms have both constrained their ability to lend and reduced the willingness of other market participants to deal with them. Great uncertainty about the values of financial assets, particularly more complex and opaque assets, has made investors extremely reluctant to bear credit risk, resulting in further declines in asset prices and a drying up of liquidity in a number of funding markets. Even secured funding has become expensive and difficult to obtain, as lenders worry about their ability to sell collateral in illiquid markets in the event of default. In addition, many securitization markets, such as the secondary market for private-label mortgage-backed securities, remain closed or impaired.
Considerable experience in both industrialized and emerging economies has shown that severe financial instability, together with the associated declines in asset prices and disruptions in credit markets, can take a heavy toll on the broader economy if left unchecked. For this reason, the Federal Reserve, the Treasury, and other agencies are committed to restoring market stability and are working assiduously to ensure that the financial system is able to perform its critical economic functions. Recent actions by the Congress have given the Treasury new tools and resources to address the stressed conditions of our financial markets and institutions. The Federal Reserve has also been granted a new authority, the ability to pay interest on bank reserves, which will allow us to expand our lending as needed to support the system while better managing the federal funds rate. These tools will provide important additional support for the government’s efforts to strengthen financial markets and the economy.
Let me briefly review recent financial developments . . ." (cont)
Current Economic and Financial Conditions
Chairman Ben S. Bernanke
At the National Association for Business Economics 50th Annual Meeting, Washington, D.C.
October 7, 2008
How various firms on Wall Street are disappearing: > click for ginormous > Source: Wall Street, R.I.P.: The End of an Era, Even at Goldman JULIE CRESWELL and BEN WHITE NYT, September 27, 2008 http://www.nytimes.com/2008/09/28/business/28lloyd.html
Speaking of pulling another trick out of the bag, here is the Fed statement on the latest alphabet scramble (CPFF) form of lending:
"The Federal Reserve Board on Tuesday announced the creation of the Commercial
Paper Funding Facility (CPFF), a facility that will complement the Federal
Reserve’s existing credit facilities to help provide liquidity to term funding
markets. The CPFF will provide a liquidity backstop to U.S. issuers of
commercial paper through a special purpose vehicle (SPV) that will purchase
three-month unsecured and asset-backed commercial paper directly from eligible
issuers. The Federal Reserve will provide financing to the SPV under the CPFF
and will be secured by all of the assets of the SPV and, in the case of
commercial paper that is not asset-backed commercial paper, by the retention of
up-front fees paid by the issuers or by other forms of security acceptable to
the Federal Reserve in consultation with market participants. The Treasury
believes this facility is necessary to prevent substantial disruptions to the
financial markets and the economy and will make a special deposit at the Federal
Reserve Bank of New York in support of this facility." (continued below)
Markets give up 100+ gains, still unsure of what direction to take . . .
Commercial Paper Funding Facility (CPFF)
Federal Reserve, October 7, 2008
Category: Federal Reserve
On Friday Congress finally passed – and President Bush signed into law – a financial rescue package in which the taxpayers will buy up Wall Street’s bad investments.
The numbers are staggering, but they don’t begin to explain the greed and incompetence that created this mess.
It began with a terrible bet that was magnified by reckless borrowing, complex securities, and a vast, unregulated shadow market worth nearly $60 trillion that hid the risks until it was too late to do anything about them.
And as correspondent Steve Kroft reports, it’s far from being over.
A Look At Wall Street’s Shadow Market: How Some Arcane Wall Street Financial Instruments Magnified Economic Crisis
CBS 60 Minutes, Oct. 5, 2008