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Fed's new lending goes beyond what's legally allowed By Rex Nutting, MarketWatch
Last update: 5:33 p.m. EDT March 20, 2008
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[F]or this crisis, the Fed has become the lender of first resort to a whole new group of financial institutions that are relying on the central bank to boost their profits.
Instead of lending only to firms that cannot find money elsewhere, the Fed apparently is lending to firms that can get the money elsewhere, yet at a higher cost than borrowing from the Fed. I say "apparently" because almost everything about the Fed's new primary dealer-lending facility is secret.
The New York Federal Reserve Bank, which runs the program, would not comment about who is borrowing or under what conditions they are borrowing. The only information that was from the Fed came Thursday in the weekly report on reserve balances, showing that the 20 primary dealers borrowed $28.8 billion on Wednesday and about $19 billion on Monday and Tuesday. See full story.
Three investment banks have announced publicly that they've borrowed from the Fed's new program, but none has provided any details about how much it has borrowed, for what purposes or under what conditions. See full story.
In the middle of the worst liquidity crisis since the Great Depression, the New York Fed is understandably bending over backwards to supply credit now and ask questions later.
What executives have said, however, indicates that these firms are violating the spirit, if not the letter of the law.
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