Fed offers banks $900bn cash loans to infuse liquidity

In a bid to inject liquidity in the cash-starved market, the Federal Reserve has offered to provide USD 900 billion in cash loans to the squeezed banks.

The Fed tried to ease Wall Street’s pain by saying that the 28-day and 84-day cash loans being made available to banks will be boosted to USD 150 billion apiece, effective Monday. Also loans that will be made available in November to banks also will be increased to USD 150 billion each. That makes a total of $900 billion in credit potentially outstanding over the year-end. Even as that announcement came, the US markets didn’t find much respite in it and slumped.

Experts, however, did not look impressed at the Fed announcements. John Manley of Citi Smith Barney said, “Firstly, the Fed has to make a risk-free investment effectively and should lower short-term interest rates. They just flood the markets with money. Secondly, there has to be sort of clarity in what way confidence will be back in the market place.” Manley added that we are doing things that weren’t even thought of during 1929. “So while it’s bad, it’s not 1929.”

Donald Straszheim, Vice Chairman, Roth Capital Partners, said, “It’s hard to find investors who are optimistic. This happens at the end of every bear market. But, unfortunately, I don’t think we are quite at the end yet. There is a lot of bad economic news waiting to come and there is this turmoil in the financial markets all over the world. I am convinced it is nowhere near being over.”

Richard Fuld, CEO of now-bankrupt Lehman Brothers said in a statement that nobody foresaw the financial crisis. “Nobody, including me, anticipated how the problems that started in the mortgage markets would spread to our credit markets and banking systems and now threaten our entire financial system and our country. Lehman Brothers got caught in this financial tsunami.”

Source: MoneyControl