Extraordinary Measures; Extraordinary Crisis

Earthside Comments: The news below will probably be taken by the gamblers at the stock exchanges as "good." It means that maybe they can keep the casino afloat for another day or so.

But the underlying question (and problem) remains 'why' are these extraordinary Federal Reserve measures necessary? Besides the obvious, superficial answer that the subprime mortgage crisis is creating a liquidity crunch, there is the unspoken truth that the entire U.S. economy is built on an eroding foundation of trillions of dollars of debt.

There is no amount of fiat, miraculously created instant money that can make that reality disappear -- or even cash that is loaned and collateralized with "private mortgage debt"!!!!! What more evidence do you need that desperate madmen are running the asylum?

Link: Fed Easing Liquidity in Funding Markets: Financial News | Associated Press/Yahoo! Finance

The Federal Reserve on Tuesday announced it is ramping up efforts to provide more relief in the spreading credit crisis, saying it will make up to $200 billion in cash available to cash-strapped financial institutions.

The Fed said it will lend the money to financial institutions for a term of 28 days, rather than overnight. The action is being coordinated with central banks in other countries to try to provide help in a global credit crises that threatens to push the U.S. economy into its first recession since 2001 if it hasn't already. ...

... The new lending initiative "is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally," the Fed said. Its announcement said that securities will be made available through an auction process on a weekly basis beginning March 27.

The new program, called the Term Securities Lending Facility (TSLF), is geared to provide primary dealers -- big investment firms that trade directly with the Fed -- with short-term loans. They would pledge other securities -- including federal agency debt, federal agency residential-mortgage-backed securities -- as collateral for the loans.

Link: Treasuries Decline as Fed to Accept Agency Debt as Collateral | Bloomberg

Treasuries fell, pushing the two- year note's yield up the most since July 1996, as the Federal Reserve's move to relieve the credit crisis prompted investors to dump holdings of government debt.

Shorter-term notes led the decline as the central bank said it will allow securities firms to pledge agency and private mortgage debt as collateral against as much as $200 billion in Treasury securities. Investors and securities firms have been hoarding government debt, considered the safest and most easily traded securities, amid the credit crunch.

"This is obviously very good news," said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York. "They're providing liquidity to those who need it the most."