Wednesday, July 30, 2008

The Credit Crisis is Far From Over

From Bloomberg:

The Federal Reserve extended its emergency lending programs to Wall Street firms through January after policy makers judged that markets are still ``fragile.''

The Fed also plans to give securities dealers options for tapping one of the loan programs to ensure financing through the ends of quarters, when funding needs can jump. Commercial lenders will be able to borrow from the central bank for a longer period, and the Fed boosted its swap line with the European Central Bank.

Today's action reflects continued financial turmoil, with premiums banks charge each other for three-month funds over the Fed's expected benchmark rate little changed since May. It's the latest step in officials' efforts to combat the yearlong credit crisis, after the Fed's March rescue of Bear Stearns Cos. and the Treasury's backstop for Fannie Mae and Freddie Mac this month.

``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.''

The Primary Dealer Credit Facility for direct loans to securities firms and the Term Securities Lending Facility for loans of Treasuries, both begun in March, will now extend through Jan. 30. They would then be canceled if the Fed judges that markets ``are no longer unusual and exigent,'' the Fed said in a statement today in Washington.

And yet, we still have people calling for a bottom in financial shares. Folks -- this ain't over by a long shot.