What’s going on in the U.S.? Can you say Plunge Protection Team?
The Fed is subsidising risk taking by continuing to lend generously at the discount window. It’s getting hard to keep up with the number of ways Ben Bernanke is lending to other banks, to investment banks, and to primary dealers. There’s the Term Auction Facility. The Fed announced yesterday it would be auctioning off another US$50 billion in 28-day loans. All depository institutions eligible to borrow under the Primary Dealer Credit Facility (the investment banks) can borrow from the TAF too, if they’d like.
And who doesn’t want free money from the Fed?
On April 3rd, Bloomberg reported that the Fed lending to securities firms rose to US$39.1 billion. This was on top of about $7 billion per day to traditional banks through the discount window. Is it any surprise the U.S. market has stopped crashing? The Fed has put in a psychological floor. It’s better than the Greenspan Put. Research from the St. Louis branch bank of the Fed shows just how much Fed lending to U.S. banks and primary dealer has increased.
Source: U.S. Federal Reserve
Markets and Money