The potent paragraph from the Fed's statement is, to my mind, this one:
The Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.
I'll have to get up to speed on the pricing in secondary markets of "investment grade" debt securities in the US but spreads on BBB securities are no doubt massive. I assume by investment grade the Fed means they will accept BBB securities, as they don't bother to define it any further.
And I am assuming this is an open-ended invitation from for the Fed to investment banks to restate the securitization machine, and that they will buy all and any piece of asset-backed security the market can now dish up.
I suppose I am angling for more references to commentary on this aspect of the Fed's package of decisions this week. Plainly the failure of Bear Stearns, something the Fed would have known about the week before last, has got things moving.
And a gentle reminder: I make a living writing on banking for an Australian audience, and the chances are responses here will help inform my thinking on these topics.
Ian Rogers