http://www.bloomberg.com/…

The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed’s emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed’s expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

“Today’s blast of term liquidity will settle the funding markets down, and allow trust to slowly be restored between borrowers and lenders,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. On the other hand, “the Fed’s balance sheet is about to explode.”

Is that hyperinflation I hear? Who needs Congress when you already have the power to bailout these institutions in other ways?

All the money in the world wouldn’t help this… why do they continue to try?

http://online.wsj.com/…

Central banks around the world pumped short-term cash into strained money markets for the second day in a row Tuesday as markets reeled amid a fast-moving crisis that is reshaping the contours of the global financial system.

With interest rates on the overnight loans banks make to one another rising sharply on market unease, European policy makers boosted the amount of funds on offer. The European Central Bank injected €70 billion ($100.17 billion) in one-day funds into euro-zone money markets, more than double its Monday injection of €30 billion. The Bank of England offered £20 billion ($36.05 billion) in extra two-day funds, atop Monday’s £5 billion in extra three-day funds.

The Swiss National Bank also made extra overnight funds available, but a spokesperson declined to say how much. The Bank of Japan injected ¥2.5 trillion ($23.84 billion) into Japanese money markets in two separate operations.

Demand surged as commercial banks scrambled for short-term cash. Bids from 56 financial institutions totaled more than €102 billion in the ECB’s auction, which set the central bank’s policy rate of 4.25% as the minimum bid rate. The Bank of England said bids totaled £58.1 billion, more than triple the £20 billion on offer.

Think of this kind of action as someone kicking the side of a kiddie pool in order to try to counteract the waves created by someone inside it… without being able to see the water’s movement. You don’t have enough information to cancel it out. You’ll just make the water more turbulent.

The best thing the central banks and governments can do is nothing.

http://www.nytimes.com/…

The Federal Reserve said Wednesday that it was extending its emergency borrowing program to Wall Street firms and was taking other steps to ease a tight credit market that has hobbled the national economy.  

The Fed said the program, where investment houses can tap the central bank for a quick source of cash, will be available through Jan 30. Originally the program, started on March 17, was supposed to last until mid-September.

Another program, where investment firms can temporarily swap more risky investments for super-safe Treasury securities also will continue through Jan. 30, the Fed said. And, it also will let commercial banks, in a separate program, be able to bid on cash loans that last longer — for 84 days, besides the 28-day loans now available.

The Fed said it was taking these steps “in light of continued fragile circumstances in financial markets.” The Fed said that the emergency borrowing program for investment houses and the program that lets investment firms temporarily borrow Treasury securities would be withdrawn should the Fed determine that conditions in financial markets are “no longer unusual and exigent.”

Starting Aug. 11, the Fed will give banks the option of bidding on 84-day cash loans from the Fed, besides the 28-day loans now available. Specifically, the Fed will conduct biweekly auctions. They will alternate between making available $75 billion in 28-day loans and $25 billion in 84-day loans. The steps expand a program started in December aimed at helping banks overcome their credit problems so that they can keep lending to customers.

The European Central Bank and the Swiss National Bank have informed the Fed that they also will make available to their banks similar 84-day cash loans. The Fed also increased its credit line with the European bank to $55 billion from $50 billion.

And the market rallies to the beat of their own destruction.

And in other news to rally against: Bush signs law to ‘help’ homeowners, Freddie and Fannie

President George W. Bush signed into law legislation that helps 400,000 homeowners facing foreclosure and extends a lifeline to Fannie Mae and Freddie Mac.

Bush signed the measure at the White House shortly after 7 a.m., spokesman Tony Fratto said. Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Steve Preston and Federal Housing Administration Director Brian Montgomery were among those present.

“We look forward to putting in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac,” Fratto said.

The law is aimed at stemming foreclosures and halting a free-fall in housing prices by providing federal insurance for refinanced 30-year mortgages for homeowners struggling to make their monthly payments.

The measure also is designed to restore confidence in Fannie Mae and Freddie Mac by tightening regulations and authorizing the Treasury secretary to inject capital into the two biggest U.S. providers of mortgage money.

The Treasury chief, who was the lead lobbyist for the White House, persuaded Bush to back off a threatened veto over a section of the legislation that provides $3.9 billion in grants to states to buy and repair foreclosed properties. Bush said he regarded it as a bailout of lenders. Democrats said it would stabilize neighborhoods.

I think if they want to raise the prices of homes they should scrap this grants for buying and repairing properties and just blow up the homes on them. It’d be cheaper to the tax payers and the increase in scarcity will push up prices. Just like they’ve been doing with farmed products since the Great Depression.

http://www.forbes.com/…

Remember when Ben Bernanke was a fan of a more transparent Fed, with bright lines on where inflation should be and how to get there?

“Inflation-targeting countries have achieved lower inflation rates and lower inflation expectation,” he wrote in his 1999 book Inflation Targeting: Lessons from the International Experience. “There is also evidence that the use of inflation targeting increases public understanding of monetary policy, improves policy-maker accountability, and provides a discipline-enhancing ‘nominal anchor’ for monetary policy.” In 2003 Bernanke said targeting in the 2% range seemed “the optimal long-run average inflation rate” for the U.S.

But since taking office, you’ll hear no such comments from the chairman. The reason? Reality. While the European Central bank’s primary concern is controlling inflation, the American Federal Reserve has the dual responsibility of maintaining both price stability and employment, making Bernanke’s job a tough one.

No one ever seems to look at those goals and ask why price stability is important and how exactly does what the Federal Reserve do which effects employment.

Read More…

http://business.timesonline.co.uk/…

Shares slumped again on both sides of the Atlantic today after the European Central Bank was forced to inject a record 95 billion euros (£65 billion) into money markets as mounting global credit jitters sparked an abrupt scramble for cash by financial institutions.

The unprecedented emergency action by the Frankfurt-based ECB outstripped even the scale of its intervention on the day after the September 11, 2001, terrorist strikes on the US, when it pumped in 69 billion euros of liquidity to stabilise credit markets.

The move badly unnerved already rattled investors and sent shares tumbling in London and New York as it fuelled anxieties over the global credit squeeze. Amid record trading volumes in the City, the FTSE 100 index lost 122.7 points, or 1.9 per cent.

In New York, the Dow Jones industrial average plummeted by 387.2 points, or 2.8 per cent, closing at 13,270.7, in its worst losses since a 416-point plunge in February, when investors were shaken by a drastic sell-off in China’s stock markets.

“[ECB] made clear that it was ready to provide unlimited funds at 4 per cent and ended up providing some 94.8 billion euros.” “… the US Federal Reserve providing $24 billion as part of daily money market operations, against only $5 billion provided on Thursday last week.” Inflation here we come! Seems the $24 billion didn’t counter act the euros given the dollar ended up trading higher and metals dropped a bit. I wonder how the market would have reacted if they failed to do this.