The Fed Signals Rate Cut; Remains In Close Contact with Treasury as Banking Crisis Deepens

The Fed is trying to use all the tools at their disposal to ensure the safety of the banking system.

A rate cut at this point does nothing in particular and is largely cosmetic given the special facilites and the new rate cut 'floor' from the payment of interest on reserves.

However, Ben is going to keep throwing junk at the market until it calms down. Or breaks down.

Bernanke Signals Fed May Cut Rates as Crisis Deepens
By Scott Lanman

Oct. 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled policy makers are ready to lower interest rates as the credit freeze poses an escalating danger to the economy.

The world financial system is under ``extraordinary stress'' and history shows that severe instability ``can take a heavy toll on the broader economy if left unchecked,'' Bernanke said in a speech in Washington. ``The Federal Reserve will need to consider whether the current stance of policy remains appropriate.''

Today's remarks indicate the central bank's record loans to unblock credit markets are insufficient to prevent a deeper economic downturn. Investors increased bets the Fed will cut its main rate by as much as three-quarters of a point this month after stock indexes slumped to four-year lows and premiums on loans between banks climbed to a record.

``They are going to cut interest rates,'' said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. ``It does not make sense to wait.''

Stocks slid after Bernanke's remarks failed to assuage investors' concerns about deteriorating financial markets, with the Standard & Poor's 500 Stock Index losing 3.6 percent to 1,019.34 at 3:30 p.m. in New York.

Minutes of the Federal Open Market Committee's Sept. 16 meeting, released in Washington today, showed that some officials then saw a need for a rate cut should there be a ``significant worsening of the growth outlook...''

Wall Street's Shadow Market: "Criminal Neglect and Incompetence"

A twelve minute video segment in which Steve Kroft of 60 Minutes looks at some of the arcane Wall Street financial instruments that have magnified the economic crisis.

"Criminal neglect and incompetence" says Jim Grant.

"Just another wash and rinse from the Other People's Money crowd" says Jesse. "Being a narcissistic sociopath means never having to say you're sorry."

Gold May Double in Price as Paper Gold Trade Collapses

Within the gold complex, there is a disparity between the paper market and the physical market, notes Jurg Kiener, CEO of Swiss Asia Capital. He tells CNBC's Maura Fogarty & Rebecca Meehan that if the paper market collapses, gold prices may double very quickly.

Gold Prices May Spike as Paper Gold Market Collapses - CNBC

Not With a Bang But a CPFF: Fed to Buy Unsecured Commercial Paper

One way to clear the sewer pipe is to buy the waste and toxic sludge and back your currency with it.

Weimariffic.

Federal Reserve Bank Press Release
October 7, 2008 9:00 a.m. EDT

The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve's existing credit facilities to help provide liquidity to term funding markets. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers.

The Federal Reserve will provide financing to the SPV under the CPFF and will be secured by all of the assets of the SPV and, in the case of commercial paper that is not asset-backed commercial paper, by the retention of up-front fees paid by the issuers or by other forms of security acceptable to the Federal Reserve in consultation with market participants. The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the Federal Reserve Bank of New York in support of this facility.

The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper, especially at longer-dated maturities. As a result, the volume of outstanding commercial paper has shrunk, interest rates on longer-term commercial paper have increased significantly, and an increasingly high percentage of outstanding paper must now be refinanced each day.

A large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and their difficulties placing commercial paper have made it more difficult for those intermediaries to play their vital role in meeting the credit needs of businesses and households.

By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. Added investor demand should lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper. An improved commercial paper market will enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households.