Day before yesterday, I wrote an article for US mortgage situation. Well, now, it gets even more interesting. As we heard in Peter Schiff show, FED really going to do it. Guess where those $19 billion will come from? Anyone? China? Taxes? Printing presses? Congrats Bernanke :-)
NEW YORK (AP) - Responding to credit crunch fears in the stock market, the Federal Reserve of New York said Friday it would buy a total of $35 billion in mortgage-backed assets to inject more cash into the banking system.
According to the New York Fed's historical data, which goes back to July 2000, the bank in that time has never accepted that much in mortgage-backed securities in a three-day repurchase agreement.
When the New York Fed -- which carries out the U.S. Federal Reserve's market operation -- made its huge three-day repurchase of $81.25 billion the Friday following the Sept. 11, 2001 terror attacks, only Treasury securities were accepted and submitted.
In a 'repo,' the Fed buys securities from dealers, who then deposit the money into commercial banks. In addition to the $19 billion in mortgage-backed securities, the Fed said it is also accepting eligible Treasury and agency collateral.
The central bank did not comment on why it was accepting more mortgage-backed securities than usual, but it's possible that the Fed was trying to remove some of the stigma that these assets currently hold in the financial markets.
The Fed announced the first repo of $19 billion at 8:25 a.m. EDT after the fed funds rate -- the rate banks charge each other for overnight loans -- surpassed 6 percent again Friday, above the Fed's target of 5.25 percent. The Fed's move pushed the fed funds rate down to 5.375 percent, still above its target.
It announced a second repo of $16 billion at 10:55 a.m. EDT.
The fed funds rate gauges how much demand there is for short-term money. If that rate greatly exceeds the Fed's target rate, the central bank puts money into the system to stabilize that demand.
On Thursday, the Fed put a larger-than-normal $24 billion in temporary reserves into the U.S. banking system, following a huge $130 billion injection by the European Central Bank into its own system.
The central bank in a short statement Friday said it would provide 'reserves as necessary' to help the markets and do what it can to 'facilitate the orderly functioning of financial markets.'
Copyright 2007 Associated Press. All rights reserved.