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. ^^^^^^^^^^ CB: This whole big financial crisis of recent months involves some financial organisms losing money from a lot of bad loans, failed debts. So, the central financial officers just give those financial organism their money back. The state is guarantor of the loans of giant money collectors ( they have many names. Lets say bourgeois monopoly /oligopoly finance). Top dogs. So, the biggest creditors are not really taking the risks that they claim as an excuse for higher interest rates. They make money, get liquidity injections, coming and going, rain or shine.
