Why is the Fed giving another $40 billion to banks after it gave $36 billion a few months ago?

Question

"In a statement timed before the start of trading in New York, the Fed said it planned to offer $40 billion in emergency funds to banks next week"
http://news.yahoo.com/s/ap/20071212/ap_on_bi_ge/fed_credit_crunch

It appears that Bush's Fed is only concerned about the market's quarterly earnings which is NOT the proposed function of the Fed.

- Please correct me if I am wrong? -

Answer 1

They like banks better than children!!

Answer 2

You are absolutely wrong.

The Fed is not "giving" money to banks. They borrow money from the Fed at the "discount rate" the Fed sets, and then loan that money out out to consumers and businesses. The money lent to banks must be paid back in full with interest.

The Fed does this not to increase quarterly earnings, but rather to give the banks enough liquidity to meet the demand for loans in the country. Liquidity for a banks means that it is able to use its assets to pay its liabilities and still be able to make loans. This was made harder by the securitized mortgages many banks held. When these went down the pipe, banks had to pay billions of dollars in cash to meet their liabilities instead of using money that should have been earned from the securitized mortgages.

If banks do not have enough liquidity to make loans, everyone suffers and the economy goes into recession. People will not be able to get loans to buy houses, companies will not be able to secure loans for invest, etc.

Take a look at the economy of Japan to see what happens when banks are not able to lend.

Answer 3

Yes, I´m worried,It looks as if Banks are botomless!

This will have a bad end, US people will be stirred up, specially US workers.But there is were my Job starts.I´m sure US Goverment will need my service, there are too any troublemakers in USA!
Viva USA! Viva The School of The Americas!

Answer 4

Uh, hate to break it to you, but they're not "giving" the banks anything. They're offering the banks money at low rates.

The Fed is going to use an auction because many financial institutions might worry investors if they used the discount window for loans. They don't give money away - they are giving low interest loans to keep things moving.

Per your cited story:
"Since the global credit crunch hit with force in August, OTHER CENTRAL BANKS [emphasis added] as well as the Federal Reserve have been injecting massive amounts of money into the banking system in an effort to keep credit flowing."

Answer 5

I'm certain you don't think this is the first time banks have been bailed out. In recent history, they did it after the 1998 Hedge Fund crisis as well as the Y2K panic and right after 9/11.

Answer 6

It's sacriligious at the most.....and proves beyond a reasonable doubt where the heart of the Republican party really lies and it is not with the people but instead with money.

mnvikes: i say let them go bankrupt for making the foolish decisions that they have made....they should suffer the consequences for taking the risk.....i don't appreciate my taxes being used to bail out financial institutions or corporations that make mistakes.

Answer 7

Why? Because the economy's doing GREAT! Bush has done such a fantastic job that the Fed now has to bail out banks in order to keep us out of a depression.

Isn't that WONDERFUL?

Answer 8

Because Bill and Hillary's best friend Robert Rubin has been in charge of Citicorp.

The Dems take care of their rich friends.

Answer 9

Because we want China to own everything. Land parcels will be next - beware iminent domain!

Answer 10

Hey, times are tough, there's a war goin on!!!
give banks a break!!!!

they've got Mercedes and condo payments,
and hey the price of gas and milk, wow!!!

Answer 11

They're desperate. The banks are in danger of collapse and the wealthy-elite will spend every dime of our money to protect their own.