Credit Crisis Battle

Today the House defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and bipartisan congressional leaders to quickly bail out the staggering financial industry.

The economic experts claim this will cause a credit crisis and the sky is falling. But no one has reported that the Feds this morning took actions to handle the problem. So why is it such a rush to do something without the required detail debate on the right solutions. This was reported this morning.

The Federal Reserve and foreign central banks agreed to pump billions of dollars into the global financial system Monday to unlock tight lending that threatens to unhinge the U.S. economy.

The Fed said the action is intended to “expand significantly” the cash available to financial institutions in an effort to relieve the worst credit crisis since the Great Depression. In taking the action, the Fed cited “continued strains” in the demand for short-term funding.

Central banks will continue to work closely and are prepared to take “appropriate steps as needed” to ease the crisis and get banks lending again, the Fed said. The Fed announced its decision shortly after the start of trading Monday morning.

Under one new step, the Fed will boost the amount of 84-day cash loans available to U.S. banks. The Fed is increasing the amount to $75 billion, up from the current $25 billion starting on Oct. 6. Banks bid on a slice of the loans at an auction.

That move will triple the supply of 84-day loans to $225 billion, from $75 billion, the Fed said.

Meanwhile, the Fed will continue to make $75 billion worth of shorter, 28-day loans available to banks.

All told, the total amount of cash loans — 84-day and 28-day — available to banks will double to $300 billion from $150 billion, the Fed said.

Moreover, the Fed will make a total of $620 billion available to other central banks, expanding ongoing currency “swap” arrangements with them where dollars are traded for their currencies. That’s up from $290 billion previously in such arrangements.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank and the central banks of Denmark, Norway, Australia and Sweden are involved in those swap arrangements.

The move comes as the U.S. financial meltdown’s tendrils have ensnared banks in Britain, the Benelux and Germany.

By pledging to provide “a very large” cash infusion, the Fed hopes the actions will “reassure financial market participants.”

What do you think about the credit crisis?

Michael H. Drucker
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