Michael Nystrom writes:
Gushing and hype aside, the real news is this: Today the Fed announced that it would loan Treasury securities to primary dealers for a period of 28 days, in exchange for AAA-rated mortgage securities, at a discount. The first weekly auction will not take place until March 27th.
What does it mean? It means the Fed is expanding its role as a pawnbroker. Banks can bring their crappy loans in to the Fed and exchange them for risk-free Treasuries for a few weeks until they (the banks) can hopefully get back on their feet. But like with all pawnbrokers, there are a few caveats: The exchange won’t be one-for-one; banks will have to take a haircut (discount) on their crappy loans. How much? That part hasn’t been worked out yet. Oh, and the loans can’t be that crappy. They’ve got to be AAA-rated paper. The banks will have to leave the super crappy toxic stuff at home. The Fed doesn’t want that and that window isn’t open, yet. Every 28 days the loan will have to be renewed, and seeing that the Fed is a bank, fees will most certainly apply.
Delaying, and exasperating, the inevitable.