Federal Reserve Extends Investment Bank Lending Until January
The Federal Reserve announced today that it was extending the emergency loan program for investment banks until January 30, 2009.
“The U.S. is pulling out all the stops here to make sure we don’t have a terrible downturn or a collapse in the financial system,” said Allen Sinai, chief global economist at Decision Economics in Boston. “There isn’t anything else the Federal Reserve can do but to keep pumping liquidity into the system.”
When financial markets were in turmoil, the Federal Reserve opened up the discount window to investment banking firms. Though normally reserved for commercial banking institutions, the fed took the unprecedented action in order to restore confidence to investors and avoid the run on funds that brought down Bear Stearns in March.
The credit crisis has gone on much longer than what many officials at the Fed were hoping. The problem of inflation and rising energy prices has been an ever growing concern but it takes a back seat to the possibility of a financial meltdown.
Did you notice how fast the federal government acted in defusing the Fannie Mae and Freddie Mac situation? In a less than three week time frame we went from fears of insolvency to a signed housing relief bill.
The government is beginning to see that monetary policy alone will not be enough to see us through this economic downturn. The Federal Reserve also needs to do whatever it takes to combat the perception that they are starting to lose their handle on the situation.
