Stocks Rise As The Federal Reserve Funds Its CPFF Lending Facility
Wednesday, 29. October 2008, 06:51:40
Banks were told to lend now that the Federal Reserve is lending through its acquired banks via the CFPP Facility
Jennifer Loven of the Associated Press reports that an impatient White House served notice on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.
"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.
Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government.
"They will be watching very closely, and they're working with the banks," she said.
Anthony Ryan, Treasury's acting undersecretary for domestic finance, made the same point in a speech in New York before financial executives.
"As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy," Ryan told the annual meeting of the Securities Industry and Financial Markets Association. "It is in a strengthened institution's best financial interest to increase lending once it has received government funding."
Said Perino: "The way that banks make money is by lending money. And so, they have every incentive to move forward and start using this money."
There has been some evidence of easier lending, Perino said. But it's not enough to calm stock markets or help small businesses that depend on a free flow of credit, not just to expand but to maintain operations through making payroll or financing inventories.
The government is making efforts on several fronts to thaw the frozen credit markets and combat the worst financial crisis to hit the country since the 1930s. But so far, the efforts have shown little in the way of results. Libor, the London Interbank Offered Rate, a key goalpost for international lending, edged down only marginally on Monday and still remains at elevated levels.
The Federal Reserve began a program Monday to purchase the short-term debt of businesses, known as commercial paper. This market has been frozen since the collapse of Lehman Brothers spooked credit markets last month.
Under the authority of the $700 billion financial bailout plan approved by Congress and signed by President Bush earlier this month, the administration also plans to dole out $250 billion to banks in return for partial ownership. The Treasury Department, which is overseeing the massive capital injection program along with the rest of the bailout, will pour $125 billion into nine of the country's largest banks this week. Another $125 billion will go to other banks.
Treasury Secretary Henry Paulson has said the money was aimed at rebuilding banks' reserves so that they would resume more normal lending practices. But reports then surfaced that bankers might instead use the money to buy other banks. Indeed, the government approved PNC Financial Services Group Inc. to receive $7.7 billion in return for company stock and, at the same time, PNC said it was acquiring National City Corp. for $5.58 billion. Officials have said that there are few strings attached to the capital-infusion program because too many rules would discourage financial institutions from participating.
Stocks rise
World Stocks, EFA, 14%
Emerging markets, EEM, 26%
Russia, RSX, 22%
South Africa, EZA, 22%
Germany, EWG, 20%
Turkey, TUR, 21%
Eastern European, GUR, 19%
Brazil, EWZ, 16%
South Korea, EWY, 21%
China, FXI, 20%
Emerging market junk bonds, DEM, 16%
Emerging market bonds, EMB, -4%
Emerging markets sovereign Debt, PCY
International Financial, 9%
International Real Estate, 5%
Steel producers, SLX, 19%
Metal manufacturing, XME, 14%
US Stocks, VTI, 10%
REITS, RWR, 18%
Real Estate, IYR, 16%
Financial, XLF, 16%
Money Center Banks, KBE, 14%
Dow, DIA, 14%
S&P, SPY 12%
Technology, MTK 11%
Semiconductors, SMH 11%
Utilities, UTH, 11%
Regional Banks, IAT, 11%
US Telecom, IYZ 11%
Russell 2000 Value, IWN, 7%
Russell 2000 Growth, IWO, 6%
Boston Properties, BXP, 24%
The yen, FXY, fell 4.3% to 102; the euro, FXE, rose 1.4% to 127 ... Chart of FXY
World currencies, DBV, rose 6%.
The dollar, $USD, fell 0.03% to 86.73.
The yen carry trade, EUR/JPY, retraced to 1.25.
The gold ETF, GLD, rose to 73.80; Gold, $GOLD, rose to 745.
The attempt to restart lending failed, as debt, fell lower in value with US Treasury Bonds.
US Treasuries, TLT, which fell 1.5%; Junk Bonds, HYG, rose 1.1%; Corporate Debt, LQD, fell 0.7%; and Municipal Bonds, MUB, fell 0.4%.
The bond market called the interest rate on the 10 Year US Government Bond, $TNX, higher to its July 14, 2008, price of 38 ... Chart of $TNX
Banks did not expand lending today nor will they in the future because:
1) Rising unemployment, credit card defaults, foreclosures, and bankruptcies.
2) Unreliable balance sheets because the SEC has thrown the fair value accounting rule out the window, and under FASB 157 assets are market to mirage, rather than marked to market.
3) There is an awareness that the Fed wants to take the central bank interest rate to zero.
4) Complete nontransparency as to what derivatives the borrower is knowinghly and unknowlingly exposed to.
Jennifer Loven of the Associated Press reports that an impatient White House served notice on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.
"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said.
Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government.
"They will be watching very closely, and they're working with the banks," she said.
Anthony Ryan, Treasury's acting undersecretary for domestic finance, made the same point in a speech in New York before financial executives.
"As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy," Ryan told the annual meeting of the Securities Industry and Financial Markets Association. "It is in a strengthened institution's best financial interest to increase lending once it has received government funding."
Said Perino: "The way that banks make money is by lending money. And so, they have every incentive to move forward and start using this money."
There has been some evidence of easier lending, Perino said. But it's not enough to calm stock markets or help small businesses that depend on a free flow of credit, not just to expand but to maintain operations through making payroll or financing inventories.
The government is making efforts on several fronts to thaw the frozen credit markets and combat the worst financial crisis to hit the country since the 1930s. But so far, the efforts have shown little in the way of results. Libor, the London Interbank Offered Rate, a key goalpost for international lending, edged down only marginally on Monday and still remains at elevated levels.
The Federal Reserve began a program Monday to purchase the short-term debt of businesses, known as commercial paper. This market has been frozen since the collapse of Lehman Brothers spooked credit markets last month.
Under the authority of the $700 billion financial bailout plan approved by Congress and signed by President Bush earlier this month, the administration also plans to dole out $250 billion to banks in return for partial ownership. The Treasury Department, which is overseeing the massive capital injection program along with the rest of the bailout, will pour $125 billion into nine of the country's largest banks this week. Another $125 billion will go to other banks.
Treasury Secretary Henry Paulson has said the money was aimed at rebuilding banks' reserves so that they would resume more normal lending practices. But reports then surfaced that bankers might instead use the money to buy other banks. Indeed, the government approved PNC Financial Services Group Inc. to receive $7.7 billion in return for company stock and, at the same time, PNC said it was acquiring National City Corp. for $5.58 billion. Officials have said that there are few strings attached to the capital-infusion program because too many rules would discourage financial institutions from participating.
Stocks rise
World Stocks, EFA, 14%
Emerging markets, EEM, 26%
Russia, RSX, 22%
South Africa, EZA, 22%
Germany, EWG, 20%
Turkey, TUR, 21%
Eastern European, GUR, 19%
Brazil, EWZ, 16%
South Korea, EWY, 21%
China, FXI, 20%
Emerging market junk bonds, DEM, 16%
Emerging market bonds, EMB, -4%
Emerging markets sovereign Debt, PCY
International Financial, 9%
International Real Estate, 5%
Steel producers, SLX, 19%
Metal manufacturing, XME, 14%
US Stocks, VTI, 10%
REITS, RWR, 18%
Real Estate, IYR, 16%
Financial, XLF, 16%
Money Center Banks, KBE, 14%
Dow, DIA, 14%
S&P, SPY 12%
Technology, MTK 11%
Semiconductors, SMH 11%
Utilities, UTH, 11%
Regional Banks, IAT, 11%
US Telecom, IYZ 11%
Russell 2000 Value, IWN, 7%
Russell 2000 Growth, IWO, 6%
Boston Properties, BXP, 24%
The yen, FXY, fell 4.3% to 102; the euro, FXE, rose 1.4% to 127 ... Chart of FXY
World currencies, DBV, rose 6%.
The dollar, $USD, fell 0.03% to 86.73.
The yen carry trade, EUR/JPY, retraced to 1.25.
The gold ETF, GLD, rose to 73.80; Gold, $GOLD, rose to 745.
The attempt to restart lending failed, as debt, fell lower in value with US Treasury Bonds.
US Treasuries, TLT, which fell 1.5%; Junk Bonds, HYG, rose 1.1%; Corporate Debt, LQD, fell 0.7%; and Municipal Bonds, MUB, fell 0.4%.
The bond market called the interest rate on the 10 Year US Government Bond, $TNX, higher to its July 14, 2008, price of 38 ... Chart of $TNX
Banks did not expand lending today nor will they in the future because:
1) Rising unemployment, credit card defaults, foreclosures, and bankruptcies.
2) Unreliable balance sheets because the SEC has thrown the fair value accounting rule out the window, and under FASB 157 assets are market to mirage, rather than marked to market.
3) There is an awareness that the Fed wants to take the central bank interest rate to zero.
4) Complete nontransparency as to what derivatives the borrower is knowinghly and unknowlingly exposed to.
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