We have seen many "liquidity injections" since August but this one appears to be very different. From what I understand, the Fed is going to auction a fixed amount of money (at least $40B according to Bloomberg) and let banks bid for the rate. In effect they are force-feeding $40B into the banks at whatever rate necessary. Such a move clearly undermines the Fed's attempt to control interest rates by fiat through the Fed Funds and the Discount Window rates. So why are they doing it? Some possibilities: 1) Maybe they are trying to overcome the stigma of the discount window. But this implies that the discount window is basically useless. The "stigma" story is not really credible to me. 2) The Fed likes the rates where they are but need to make a temporary move. Which raises the very interesting question: what's the emergency? Is some big institution in big trouble?
http://www.bloomberg.com/apps/news?pid=20601087&sid=armCqTJRYg3M -raghu. On Dec 12, 2007 2:10 PM, Charles Brown <[EMAIL PROTECTED]> wrote: > http://www.rgemonitor.com/blog/roubini/232095 > > Nouriel Roubini | Dec 12, 2007
