Discount Window Borrowings: $262 Billion

September 25th, 2008 10:54 pm | by John Jansen |

I wrote a few weeks ago when Lehman collapsed or AIG collapsed that observing the financial markets today is like reading financial science fiction.

This another unprecedented evening after an unprecedented day. There is no history to consult and no markers to guide us. We are flying seat of the pants and at the moment it appears that the pilot has had a heart attack and is slumped over the control panel.

We have all read about the collapse of the rescue plan as hopes for a package faded TS Eliot style “not with a bang but a whimper”. I am fearful for the markets tomorrow as the already much stressed markets confront this latest blow to confidence.

Consider the level of Discount Window borrowings in the week ended Wednesday: $262 billion. As the Romans said,”res ipsa loquitur” which in English translates to “the thing speaks for itself”.

The words of JPMorgan economis Michael Feroli say it best:

You’re seeing financial institutions all over the place take advantage of the Fed’s offer to extend credit,” said J.P. Morgan Chase economist Michael Feroli. “The Fed may be the lender of last resort, and I guess a lot of people are at their last resort now.”

I have a feeling that unless there is some middle of the night announcement that we are in for a wild ride tomorrow. If credit conditions worsen I would not be surprised to see the Fed address the problem with an old fashioned rate cut.

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  1. 5 Responses to “Discount Window Borrowings: $262 Billion”

  2. By Terminal on Sep 26, 2008 | Reply

    Markets seldom reward desperate conduct.

  3. By wintermute on Sep 26, 2008 | Reply

    The Fed has lost control of interest rates. People are paying 3% or 4% for dollars. Reducing the funds rate further just creates greater systemic pressures.
    Possibly the single most important reason for the credit crisis is the governments insist on establishing the price of money! The real price of money in a complex global econonomy cannot be calculated by any one institution. Only the free market can do that. In some ways the credit crisis is a painful lesson for goverments about ill-advised tinkering (rate cuts/rises). They should follow Libor on government debt and we would have financial stability.

  4. By UrbanDigs on Sep 26, 2008 | Reply

    “I would not be surprised to see the Fed address the problem with an old fashioned rate cut.”

    Exactly John. The fed was simply TALKING TOUGH on inflation, to help curb commodity price inflation and rising inflation expectations that were resulting. In reality, deflation is the problem.

    Ive been in the EVENT/EMERGENCY rate CUT camp for about 4 months now, even as fed funds futures and all media expected a rate HIKE.

    At the last fed meeting, I saw a dovish side to the statement, and BR at TBP saw a hawkish side.

    I do not see wage inflation and I do see a major contraction of the shadow banking system, amidst credit deflation. The fed will CUT, and probably a few times to combat this mess. Think about the econ data to come that shows this paralysis down the road! Unemployment is likely to rise to over 7% as well. Turbulent times.

  5. By anon on Sep 26, 2008 | Reply

    Can someone explain why the effective Fed Funds rate has fallen so far below the target the past few days (1.48 last Friday, and then 1.51, 1.46, 1.19, and 1.23 so far this week)?

    And a followup, why use the discount window if you can get the rates mentioned in my first question?

  6. By vokalerru on Feb 20, 2010 | Reply

    ….не плохо
    В этом что-то есть. Теперь стало всё ясно, большое спасибо за помощь в этом вопросе.
    По моему мнению Вы допускаете ошибку. Давайте обсудим. Пишите мне в PM.
    А есть похожий аналог?
    Вместо того чтобы критиковать лучше пишите свои варианты.

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