FED BUYS $200B IN TOXIC MORTGAGES TO BAIL OUT LENDERS

"Jupiter, Fla. (PRWEB) March 16, 2008 -- Mike Larson examines the Federal Reserve's different plans of action that have been developed since the start of the recession. Mr. Larson takes a closer look at each of the plans and the terms that exist within them.

The Federal Reserve's reaction to the mortgage crisis started with a discount rate cut of 50 basis points in August of 2007. That was followed by another 50-point cut in September, a 25-point cut in October, another 25 in December, a whopper 75-point cut on January 22 and then another 50 points eight days later. During that same time period, the federal funds rate was slashed from 5.25% to the current 3%. And by all indications, another 50-point or 75-point cut could be seen at the Fed's March 18 gathering. The Fed is slashing rates and throwing hundreds of billions of dollars at the credit crisis.

But that's not all. In December 2007, the Fed unveiled an unconventional "Term Auction Facility" (TAF) for the first time. The supposedly temporary plan allows for the periodic auction of funds to depository institutions in exchange for a wide variety of collateral. The Fed is willing to accept everything at the TAF, from U.S. Treasuries to foreign government debt to commercial mortgage-backed securities, residential mortgages, and even consumer loans. These auctions started at $20 billion each. That jumped to $30 billion a pop in January. Then most recently, the Fed boosted the auction sizes to $50 billion. And the Fed wasn't finished. It also said it would conduct several repurchase transactions totaling roughly $100 billion. Repurchase operations are those where the Fed swaps cash for assets. It's doing them on a 28-day basis, too, rather than the customary overnight term. "