Real Estate Blog

Good news today for the housing sector and the stock markets; $200 billion in cash will be available to the financial markets. This is the Feds most aggressive move in years to help fix the liquidity crisis and stimulate the U.S. economy . And it is working! The investors could not agree more. The Dow had its strongest showing in the last 5 years closing 416.66 points higher.

This makes so much more sense than another rate cut because rate cuts: are not getting pass down to home buyers, it does not create liquidity, and it weakens the dollar. This move should have been done months ago and should be done again instead of another rate cut. This boost of liquidity will also boost the confidence of investors and consumers, I think it is the Feds best available option and it will definitely help the U.S. markets. Written by Fred Hintenberger.

WASHINGTON (AP) – March 11, 2008 – The Federal Reserve on Tuesday announced it is ramping up efforts to provide more relief in the spreading credit crisis, saying it will make up to $200 billion in cash available to cash-strapped financial institutions.

The Fed said it will lend the money to financial institutions for a term of 28 days, rather than overnight. The action is being coordinated with central banks in other countries to try to provide help in a global credit crisis that threatens to push the U.S. economy into its first recession since 2001 if it hasn’t already.

“Pressures in some of these markets have recently increased again,” the Fed said in a statement. “We all continue to work together and will take appropriate steps to address those liquidity pressures.” The other banks involved are the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank.

In addition, the Fed has authorized increases in existing programs called “swap lines” with the European Central Bank and the Swiss National Bank

“These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB respectively,” the Fed said, extending the term of these swap lines through Sept. 30.

The new lending initiative “is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally,” the Fed said. Its announcement said that securities will be made available through an auction process on a weekly basis beginning March 27.

The new program, called the Term Securities Lending Facility (TSLF), is geared to provide primary dealers – big investment firms that trade directly with the Fed – with short-term loans. They would pledge other securities – including federal agency debt, federal agency residential-mortgage-backed securities – as collateral for the loans.

The loans would be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008.

The Fed since December has been making short-term loans available to banks through a new auction facility. It has provided $160 billion available to squeezed banks in hopes it will help them to continue lending to individuals and companies.

Last week, the Fed announced that it would increase the amount of loans it plans to make available to banks this month to $100 billion. At the same time, it said it would make another $100 billion available to a broad range of financial players through a series of separate transactions.

The Fed has been working to pump billions of dollars into the banking system to aid an economy rocked by the subprime mortgage crisis and the severe tightening of credit.

A meltdown in the housing and credit markets has made banks and other financial institutions reluctant to lend to each other, causing a cash crunch. Financial companies wracked up multibillion-dollar losses as investments in mortgage-backed securities soured with the housing market’s bust. Problems first started in the market for subprime mortgages – those made to people with blemished credit histories. However, troubles have spread to other areas.

The picture worsened just after the Fed’s announcement Friday, when the Labor Department released a report showing employers slashed another 63,000 jobs in February, the most in five years.

This injection of much needed liquidity will help stabilize the battered U.S. economy.

Copyright © 2008 The Associated Press, Jeannine Aversa (AP Economics Writer). Associated Press Writer Harry Dunphy contributed to this story. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.