Monday, August 20, 2007

I WAS WONDERING HOW THIS WAS GOING TO WORK

(Via The Big Picture)

The Fed eased up on loans to banks but banks weren't the ones holding the sub-prime paper, so how would that help the credit squeeze? The Wall Street Journal explains it:

Another banker participating in the call said of the Fed, "What they came up with is pretty ingenious." Investment banks or hedge funds that hold mortgage-backed securities can't borrow from the Fed directly, but they can bring those securities to banks. In turn, the banks can offer the paper as collateral to the Fed for a 30-day loan.

The Fed "really wanted to drive home the point that if [bankers] were complaining about not being able to borrow money against liquid, high-quality securities -- mortgages -- we have no more basis for complaint. We were all given a clear message," says this banker.

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