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  • The Big Banks Are Lending, But Mainly to One Customer

    From the President, in his state of the union address, to small business owners around the country, everybody seems to be pressing for the banks to revive lending. Marketplace 's Paddy Hirsch points out that the big banks are lending, and making a nice bit of money doing so. But, he adds, it is all to "one very special borrower":

  • Tim Duy: Fed Looking at 'Long Hard Road' of Recovery During FOMC Meeting This week

    The Federal Open Market Committee (FOMC) is set to meet Tuesday and Wednesday of this week. Tim Duy points out that Ben Bernanke and friends will be meeting with a far more positive "economic backdrop" than they have had for a long time. But for all the relatively good economic news there is, uncertainty remains. Duy believes that the FOMC should continue to anticipate slow recovery, and he points to limited consumer credit as a primary reason: Given the steady anecdotal buzz surrounding the deterioration of the commercial real estate market, it is difficult to expect a rapid reversal of these trends. In short, if you think credit markets are still under stress, as the Fed certainly does, and are worried about the availability of credit to support future spending, also among Fed concerns, then shifting rhetorically to signal a tighter policy stance irrational. Moreover, it would seem inconsistent with plans to continue expanding the balance sheet via purchases of mortgage backed securities and TALF assets. So, it seems Duy is telling us not to expect a drastic change in Fed policy until we see a major shift in consumer credit and unemployment. Read Even With Growth, A Long, Hard Road here .

  • The Fed Buying Treasury Bonds

    The Federal Reserve has been battling the credit crisis for half a year now. In December, it lowered interest rates to near zero, and today it announced that it will buy $300 billion in long term government securities and $850 billion in securities from Fannie Mac and Freddie Mae. This from the Fed's press release: In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The markets seemed to respond positively to the announcement, as the Washington Post points out : Stocks rose dramatically this afternoon after the Federal Reserve announced that it is expanding unconventional efforts to lower interest rates and stimulate the economy by increasing its purchases of mortgage-related securities by $750 billion and buying $300 billion in long-term Treasury bonds. Read the Fed's press release here .