Re: fed forecasts

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Posted by Warren Mosler (208.49.176.241) on 17:30:53 12/01/07

In Reply to: Re: fed forecasts posted by RSG

: Warren, what would be the market implications (impact to interest rates, etc.)of banks using the discount window to fund SIV assets that are technically not on their balance sheets. Would all the SIV collateral qualify?

might as well, as long as no new advances are allowed. the actual losses will go to bank shareholders anyway for all practical purposes.

It seems like too obvious of a solution.

yet another sad but true

:
:
: : The 'right move' remains to
: :
: : cut the discount rate to the ff rate,
: :
: : remove the stigma,
: :
: : open the window to any member bank in good standing for any qualifying
: : collateral (the collateral banks own and are allowed to by is already
: : determined by the regulators and the banks can issue govt guaranteed
: : liabilities up to 100,000 to fund it, so this doesn't add any
: : 'exposure' to the govt.)
: :
: : Allow 90 day term funding at the window to allow the fed to set the
: : ceiling for 90 day member bank cost of funds.
: :
: : Allow banks to fund up to 100% of their SIVs but restrict them from
: : expanding them from present levels, and require them to 'run off' over
: : time. This is not a bail out as the shareholders will still take any
: : losses if the collateral doesn't perform over time. It does prevent a
: : disruptive fire sale.
: :
:

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Subject:	Re: fed forecasts
Comments:	: : Warren, what would be the market implications (impact to interest rates, etc.)of banks using the discount window to fund SIV assets that are technically not on their balance sheets. Would all the SIV collateral qualify? : : might as well, as long as no new advances are allowed. the actual losses will go to bank shareholders anyway for all practical purposes. : : It seems like too obvious of a solution. : : : yet another sad but true : : : : : : : : : The 'right move' remains to : : : : : : cut the discount rate to the ff rate, : : : : : : remove the stigma, : : : : : : open the window to any member bank in good standing for any qualifying : : : collateral (the collateral banks own and are allowed to by is already : : : determined by the regulators and the banks can issue govt guaranteed : : : liabilities up to 100,000 to fund it, so this doesn't add any : : : 'exposure' to the govt.) : : : : : : Allow 90 day term funding at the window to allow the fed to set the : : : ceiling for 90 day member bank cost of funds. : : : : : : Allow banks to fund up to 100% of their SIVs but restrict them from : : : expanding them from present levels, and require them to 'run off' over : : : time. This is not a bail out as the shareholders will still take any : : : losses if the collateral doesn't perform over time. It does prevent a : : : disruptive fire sale. : : : : : :
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