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Friday, August 17, 2007


continuing commercial paper problems

problems in commercial paper are apparently continuing in spite of the fed's discount window rate cut and rollover policy change.

Top-rated asset-backed commercial paper maturing Aug. 20 yielded 5.99 percent, up 39 basis points since yesterday and the most since a 45 basis point increase on Sept. 20 in the wake of the terrorist attacks in New York City and Washington.

The Fed is trying to encourage banks to buy commercial paper by allowing institutions to borrow for 30 days rather than overnight and making it renewable at the borrower's option, according to Drew Matus, an analyst at Lehman Brothers Holdings Inc. in New York.

The Fed's action ``may help add confidence that action will be taken when it's necessary, but further action is needed to actually offset the credit contraction we have had,'' Ashish Shah, global head of credit strategy at Lehman Brothers Holdings Inc. said in interview from New York. ``No one actually wants to tap the Fed window. So while this is good, it doesn't actually add any liquidity into the system. It's more of a confidence booster.''

credit markets appear to be holding out for more than what the fed did today. a nice bounce for equities today, but next week will have more to tell. countrywide could well be one of those who approach the discount window.

also, lee adler has been following the fed's actions in open markets this week:

So the discount rate “cut” keeps the discount window .75% above the current market. Big freaking deal, huh? At this morning’s repo auction the Fed did another drain, this time in the amount of $6 billion as they allowed $12 billion to expire, while adding only $6 billion in weekend repos. The stop out rate was 5.35%. Does that sound like a rate cut to you? Because they removed last Friday’s big pump job on Monday, the 5 day net dropped to a drain of $32 billion. Does that sound like liquefaction to you? It sure doesn’t to me.

Even over the last four days, when the stock market was melting down and the credit markets were in crisis, the Fed only added a net of $4 billion. There’s just nothing to see here. At least not yet. All in all, the Fed’s action this morning seems like a mean, stupid, and futile gesture, worthy of Animal House for its humor and theatrical impact. And aside from the Fed’s draining in the face of catastrophe, there was even more bad news from the Foreign Central Banks (details later in the report).

that news from the foreign central banks? russ winter:

This week marks an historic liquidation of foreign central bank (FCB) held US securities. The total tossed overboard was $17 billion, which also brings the three week total sold to $22.0 billion. This was likely necessitated by the need for US Dollars particularly as European banks were squeezed by insolvency issues ( I refuse to use the term “liquidity”). That’s what reserves are for in theory, emergencies and not just subsidizes for Americans. If you are looking for a causa proxima to market swoons of late, look no further. Old Maid Card issuers in the US are heavily reliant on this opiate.

this would help to explain some of the declines in the dollar against other currencies, as dollar-denominated securities were sold for dollars and the dollars sold for home currencies. moreover, it was already beginning in may.

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