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The federal reserve pours 200 billion into the credit markets.


The Fed today announced a capital infusion of 200 billion into the credit markets.

The stock market has dropped by over 10% in 2008 and the credit markets were in complete dissaray. Today, the Federal Reserve announced a major collaborative move with European banks to try to restore some confidence into the marketplace. The Fed in connection with other central banks will be pouring over 400 billion into the markets through their auction window. The key to this announcement is that it will allow for mortgage backed securities to be swapped for treasury securities. The spread between treasury bonds and mortgage bonds rose to over 50 basis points, the highest level in the last 15 years and the mortgage industry has ground to a halt with this challenge. Jumbo loans were becoming non existent in the market as there was no secondary market to sell these securities on. Thornburg mortgage and the Carlyle group have made major headlines over the past week with steep margin calls putting both firms on the edge of bankruptcy. Major banks and broker firms such as Citigroup, Washington Mutual, and Indymac all have seen their net shareholder value chopped in half over the past six months with the fallout from the housing markets. The move by the fed should help to remove some of the panic from the markets and next week they will likely follow up today's announcement with a 50 basis point cut to the fed discount rate. The U.S. is certainly in a recession, but it appears the Fed is aggressively working to help pull the country out of its tailspin as diligently as possible.

3--2008 ? LoanNetwork.com





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