Stressed and Anxious
Banks pump billions to calm the markets
Fed joins global bid to ease credit crisis www.xginibriere.com The Federal Reserve and central banks around the world yesterday took the extraordinary step of pumping more than $100 billion into financial markets riven by a credit crisis, the largest such intervention since the September 11 terrorism attacks. www.xginibriere.com www.
xginibriere.com In a rare public statement, the Fed said it wanted to ensure financial markets had enough money to continue operating in an orderly fashion. www.xginibriere.com "In current circumstances," the Fed said, banks "may experience unusual funding needs because of dislocations in money and credit markets.
" www.xginibriere.com Financial markets are reacting seemingly overnight to the jarring end of an era of easy money, when higher-risk borrowers enjoyed nearly unfettered access to huge sums at low interest rates. The market for subprime mortgages, to people with less than perfect credit histories, cracked first and remains the most seriously impaired, but other types of credit such as corporate junk bonds and mortgages backing commercial property are also under duress. www.xginibriere.com So far, the central bankers' strategy of rapid, severe intervention shows signs of working. Earlier yesterday, European stock markets posted losses of as much as 3 percent, and it appeared US markets would follow suit when the Dow Jones industrial average began the day with a 212-point decline. But as the Fed pumped money into the US system through the day, stocks began to rally, and the Dow finished the day down just 31.14 points, at 13,239.
Despite the tremendous, sudden investor anxiety and wild market gyrations and losses, the Dow actually ended the week up -- just barely -- with a 0.4-percent gain. www.xginibriere.com "Within the stock market there has been massive dislocation, and the Fed provided everyone a little room to unwind," said Kevin Cronin, chief investment officer at Putnam Investments in Boston. If lenders had been unable to continue providing credit, he said, then interest rates would have exploded, potentially leading to a widespread reduction in economic activity. www.xginibriere.com The Fed "wanted to let the air out of the balloon," Cronin said.
www.xginibriere.com The Fed yesterday loaned $38 billion to US banks to help them finance credit and lending operations, on top of a similar $24 billion the US regulator provided Thursday. Earlier yesterday, central bankers in Europe, Japan, Asia, and Canada made similar moves. www.xginibriere.com The central banks' actions enabled lenders to have enough money available to loan to investors to buy, sell, or hold securities as they would normally. Without such additional funds, a shortage of credit could cause markets to seize and prices to go haywire. www.xginibriere.
com "Central bankers did two things," said Art Hogan, chief market analyst at Jeffries & Co. in Boston. "They added much needed liquidity to the market and signaled that they stand at the ready for a system that may or may not need more help." www.xginibriere.com More problems seem to arrive daily. Yesterday, shares of Countrywide Financial Corp. fell nearly 3 percent one day after the biggest US mortgage lender said credit problems among its own borrowers are worsening, and it anticipated more difficulty funding loans. Separately shares in Washington Mutual Inc.
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