Friday, August 17, 2007
the discount rate
The 50bp cut in the discount rate (strange it is still called that as it is set a premium to Fed Funds) is the right move to help calm the markets. The talking heads were saying why not 100 bp, but if they do that it would be tougher to come in again if necessary. Hopefully, this will free up the CP market, which is the real problem here.
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3 comments:
This was necessary even thiugh it was essentialy a Fed "jawbone" as borrowing at the window is last-resort financing and no one was expected to actually use it.
They should use it. First of all, it isn't a "discount" anymore, so there is no bargain. And, second, in this era of instant information, what is a bigger stigma: being unable to issue cp at 12% or going to the discount window. Countrywide-now a Citi takeover target.
The stigma was enough that the Fed requested the big banks to come to the window. The liquidty crises is due more to fear than to capital leaving the markets.The knuckleheads who bot the 1-month bill at 1.60% have egg on their faces and rightfully so.
I wonder how Joe Deane feels about his 6.00% 10-year now?
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