Some emailers have wondered what the NY Fed is up to with respect to its "Dscount Window". Banking institutions can go to this window to borrow money to alleviate "liquidity strains". The borrowing time is generally overnight to enable a financial institution to smooth things out. The loans can go as long as 14 days.
In looking at the Temporary Market Operations of the New York Fed last week they accepted NO bids for mortgage backed collateral after 9 a.m. on Thursday and then nothing on Friday. Those were the 2 worst days of the week for the subprime lenders and taxing for anything related to mortgages. A few days is a small sampling and if you look back through the operations, the Fed has not been accepting much in the way of mortgage backed collateral for several weeks.
My emailers have wondered if the Fed is sending a 'no help from us' message to the subprimers, but the posters over at the Roubini blog theorize that perhaps the Window is reacting to fraud and its impact on mortgage backed collateral quality. Yet another poster on the Roubini blog worries that we should watch for signs that the Fed BEGINS to lend more against the mortgage collateral as a sign a bailout is taking place.
Interesting stuff, and the link above is worth keeping on eye on.
Comments are welcome.
By the way, reader Jason sent this very interesting link along Saturday about Merrill Lynch apparently margin calling some distressed B&C companies. The snowball is starting to roll down the hill folks.