Rescue Tests the Credibility of the Fed
By EDMUND L. ANDREWS
New York Times
WASHINGTON — Far more than at any time before, the Federal Reserve is putting its vast resources and its reputation on the line to rescue Wall Street’s biggest institutions from their far-reaching mistakes.
Over the next few months, the central bank will lend hundreds of billions of dollars to banks and investment firms that financed a mountain of mortgages now headed toward default.
No one knows how many financial institutions will be looking for money, or how much they will seek. No one knows how much in hard-to-value securities the central bank, in return, will have to hold as collateral.
And no one knows how much the Fed could lose if the borrowers fail to repay their loans or whether hundreds of billions of dollars will ultimately have to come from taxpayers to shield the nation’s financial system from ruin.
In recent weeks, the central bank announced a series of emergency short-term loan programs that totaled about $400 billion. But on Sunday, Fed officials raised the stakes by offering investment banks a new loan program without any explicit size limit.
(Continued here.)
New York Times
WASHINGTON — Far more than at any time before, the Federal Reserve is putting its vast resources and its reputation on the line to rescue Wall Street’s biggest institutions from their far-reaching mistakes.
Over the next few months, the central bank will lend hundreds of billions of dollars to banks and investment firms that financed a mountain of mortgages now headed toward default.
No one knows how many financial institutions will be looking for money, or how much they will seek. No one knows how much in hard-to-value securities the central bank, in return, will have to hold as collateral.
And no one knows how much the Fed could lose if the borrowers fail to repay their loans or whether hundreds of billions of dollars will ultimately have to come from taxpayers to shield the nation’s financial system from ruin.
In recent weeks, the central bank announced a series of emergency short-term loan programs that totaled about $400 billion. But on Sunday, Fed officials raised the stakes by offering investment banks a new loan program without any explicit size limit.
(Continued here.)
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