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Wednesday, November 30, 2011

More Fed futility

Don't be surprised if the Dow jump from the Fed's latest desperation effort fades within a week:
Six central banks led by the Federal Reserve lowered the cost of emergency dollar funding for financial companies in a global effort to ease Europe’s sovereign-debt crisis. The new interest rate is the dollar overnight index swap rate plus 50 basis points, a half percentage-point cut, and the program was extended by six months to Feb. 1, 2013, the Fed said today in a statement in Washington....

The dollar swap lines were previously set to expire Aug. 1, 2012. The new pricing will be applied to operations starting on Dec. 5. Seven-day loans would carry an interest rate of about 0.58 percent, down from 1.08 percent, based on the current one- week OIS rate of 0.08 percent.
They can cut it to zero and it's not going to work. It's supposed to be "confidence-inspiring" that all the central banks are "working together". Of course, the fact that they are doing so only underlies how impotent and desperate they are. No amount of jump-starting will revive a battery that is truly dead.

Zerohedge has a theory concerning what galvanized them into action: "It appears that a big European bank got close to failure last night. European banks, especially French banks, rely heavily on funding in the wholesale money markets. It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue." >

For the time being.... Here's what happened last time.

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