4 Large Banks just borrowed $500 million each:

[Sponger]

Just another way for the Fed to try and calm the markets out of panic mode. You can be sure that Bernanke made the call to the heads of these banks and said "Ladies and gentlemen, we have a potential crisis at hand, and we need your help to alleviate the situation". I cannot recall a time that ANY major bank made a public announcement that they used the discount window. It actually has me more concerned that they made the statements. Then again, this may be a new tactic for the Fed - manipulation of the big money center banks to say "all is well" - might work, might not.

 

[Sponger]

Quote from Sparohok:

Here's what this is about.

The Fed desperately wants to avoid cutting the funds rate, because they are rightly concerned about stagflation and the dollar.

If they can give the market the impression that they are doing something, without actually doing anything, then they hope the credit logjam will break and confidence will return to lending markets. That's what last Friday's discount rate cut was about. Credit markets have largely ignored this move, but the equities markets are eating it up, which from the Fed's perspective is not exactly the outcome they were looking for.

On Thursdays the Fed releases reserve statistics. They would have shown a negligible amount of lending at the discount window, revealing last week's "rate cut" as the sham it really was. In a last ditch effort to avoid messing with the Funds rate, Bernanke calls his buddies on Wall Street and convinces them to take out some token loans from the discount windows. This will cost them each about $200k in additional carrying cost over the next 30 days, but that's pocket change. They know that it is in their own best interests that the Fed has credibility here, because it is their own creditors who would be bailed out by a return of liquidity and risk tolerance in credit markets.

In effect, Bernanke is painting the tape to make it look like he's done something when he really hasn't.

Martin

My thoughts EXACTLY - I typed my first response before seeing yours, nice post.

 

[dhpar]

i wonder how long the discount window stays opened in the current form. since today it is not bad thing to use it so ultimately everybody will start to flush market with huge amount of cash - it is like huge reverse repo window for lower quality collateral....good thing in a very short term but disastrous if it stays for few months!

 

[flytiger]

Quote from Sponger:

Just another way for the Fed to try and calm the markets out of panic mode. You can be sure that Bernanke made the call to the heads of these banks and said "Ladies and gentlemen, we have a potential crisis at hand, and we need your help to alleviate the situation". I cannot recall a time that ANY major bank made a public announcement that they used the discount window. It actually has me more concerned that they made the statements. Then again, this may be a new tactic for the Fed - manipulation of the big money center banks to say "all is well" - might work, might not.

......because, that works in life. you don't pay attention, let things get out of hand, and hope they get better.

Works every time.

PS. Guess who picks up the check????:eek:

 

[Restricted]

Clearly everything is fine now. i just borrowed from the discount window myself and used it to buy RIMM, BCSI AAPL and some futures. They have a jar of mints on the ledge too, take one they are delicious.

 

[palenimbus]

I was gonna take one but I thought those mints were your collateral.

 

[Don Bright]

Quote from capmac:

JPM JP Morgan Chase, Bank of America, Wachovia each borrow $500 mln from Fed Discount Window; encourages use of it (45.62 -0.59)

JPM, BAC, WB jointly announce today that they have made use, on a limited basis, of the discount window facility announced by the Federal Reserve Board late last week. In transactions intended to display the effectiveness of the facility, JPMorgan Chase, Bank of America and Wachovia each borrowed $500 mln, including some on a term basis, at the discount window. While JPMorgan Chase, Bank of America and Wachovia each have substantial liquidity and the capacity to borrow money elsewhere on more favorable terms, the companies believe it is important at this time to take a leadership role in demonstrating the potential value of the Fed's primary credit facility and to encourage its use by other financial institutions. Co's hope their actions today will highlight that point for the financial community and promote broad acceptance of the use of the facility.

I guess this is what caused the immediate drop of 6 or 7 spoo points around 12:30 Eastern today.

And, I don't get the part about being able to borrow $$ elsewhere at a cheaper rate? First off, where? Secondly, if they can, and decide to pay up to the Fed to "take a leadership role..." hmm, makes one wonder whose decision this was...sounds like a Bank shorting opportunity, but who knows.

Don

 

[Bingoking]

And as traders we are told never to add to a losing position . . .
hmmmmmm

 

[dhpar]

Quote from Don Bright:

I guess this is what caused the immediate drop of 6 or 7 spoo points around 12:30 Eastern today.

And, I don't get the part about being able to borrow $$ elsewhere at a cheaper rate? First off, where? Secondly, if they can, and decide to pay up to the Fed to "take a leadership role..." hmm, makes one wonder whose decision this was...sounds like a Bank shorting opportunity, but who knows.

Don

i can see the logic here - CEOs of these bank have all big egos. The fact that they are "saving the World" and "Fed's face" at the same time is worth few hundred grand to them. Also when everything is behind us they can always say "hey, that was us who saved you from I don't know what". Remember LTCM? -it is still coming back...

 

[stock_trad3r]

Quote from capmac:

JPM JP Morgan Chase, Bank of America, Wachovia each borrow $500 mln from Fed Discount Window; encourages use of it (45.62 -0.59)

JPM, BAC, WB jointly announce today that they have made use, on a limited basis, of the discount window facility announced by the Federal Reserve Board late last week. In transactions intended to display the effectiveness of the facility, JPMorgan Chase, Bank of America and Wachovia each borrowed $500 mln, including some on a term basis, at the discount window. While JPMorgan Chase, Bank of America and Wachovia each have substantial liquidity and the capacity to borrow money elsewhere on more favorable terms, the companies believe it is important at this time to take a leadership role in demonstrating the potential value of the Fed's primary credit facility and to encourage its use by other financial institutions. Co's hope their actions today will highlight that point for the financial community and promote broad acceptance of the use of the facility.

So what?