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The Federal Reserve Continues it Efforts to Save the Economy
Recently, the Federal Reserve increased lending to banks and investment firms, continuing to reveal our struggle with
the credit crisis.
Last week, a report stating that banks, borrowing daily, were averaging almost 94 billion dollars for that week. This is up
approximately two billion dollars from the week before. In the same report, it also stated that investment firms were borrowing
over fifty two billion dollars ending that week, with an increase of nearly two billion dollars compared to the week before.
The borrowing that has trickled down to the financial firms can be attributed to their inability to raise money through
channels that normally worked in the past. Then there are banks that are having a hard time letting go of their money fearing that
the debt might never be repaid. The government has been pouring money into these institutions hoping that the banks will be
able to resume regular lending practices, as soon as possible.
In late October, the central bank began purchasing commercial paper, hoping to open up credit markets and increase demand by boosting the
paper's availability.
Almost two weeks ago, the Federal Reserve announced the addition of a couple of new programs, which had been created to continue to stimulate
the current credit market. First, the Fed will start purchasing mortgage backed securities from Freddie Mac and Fannie Mae and
second, they have agreed to inject more money into financial firms that are willing to purchase securities that are backed by an array of
consumer debt.
Furthering the Fed's efforts is the recent rescue of Citigroup. Last month, Vikram Pandit, the Chief Executive of Citigroup
said that the previous management is to blame for heavily investing in real estate. The statement was in reponse to the government bailout of Citigroup, which has agreed to
absorb some of the possible losses from a more than three hundred billion dollar portfolio. In addition, they also
put up twenty billion dollars, to help prevent the bank from going under.
Citigroup has more than twenty billion dollars in losses for the year, with a good possibility that the losses will continue, due to
expected increases in credit card loss and foreclosures.
During 2008, Citigroup shares have taken a pounding falling almost eighty percent from the nearly thirty dollars per share the
company had at the end of 2007.
Marin Real Estate Blog
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