By Pam Martens and Russ Martens: March 12, 2020 ~
Making the most unprecedented announcement in the history of Wall Street, the Federal Reserve Bank of New York announced today that it will be offering $500 billion in 3-month repo loans to its primary dealers (Wall Street trading firms) today at 1:30 p.m. That $500 billion comes on top of the $198.10 billion the New York Fed loaned the street in its morning repo operations.
Tomorrow, the New York Fed said it will offer its primary dealers another $500 billion in a 3-month loan and another $500 billion in a one-month loan, bringing the two-day total to potentially more than $1.7 trillion being offered at super low interest rates. (The Fed will also offer its regular one-day loan of $175 billion tomorrow.)
These are staggering, unprecedented sums being offered by the Fed while it simultaneously claims that the Wall Street banks have adequate capital. The fact that the Dow was down another 2,000 points this morning and the stock market was locked, limit down, shortly after the opening bell certainly played a role in the decision. (The New York Stock Exchange suspends all trading for 15 minutes when the S&P 500 Index drops 7 percent, which it did shortly after the opening bell at 9:30 a.m. today.)
To prop up the stock market further, the Fed announcement indicated that the $500 billion in 3-month loans and $500 billion in one-month loans will be offered weekly “for the remainder of the monthly schedule.” That means $1 trillion a week will be available at below-market interest rates. That will be on top of the $175 billion the Fed is offering daily in one-day loans and the $45 billion it is offering each Tuesday and Thursday in 14-day loans. This is a dramatic expansion of the Fed’s balance sheet to support Wall Street — all without one vote, or debate, or hearing occurring in Congress.
In addition, the Fed announced that its $60 billion purchase of Treasury bills (up to a one-year maturity) will now be expanded to include “purchases across a range of maturities to roughly match the maturity composition of Treasury securities outstanding.”
The Fed said that its Open Market Desk plans to make “purchases across eleven sectors, including nominal coupons, bills, Treasury Inflation-Protected Securities, and Floating Rate Notes. The distribution of purchases across sectors will be the same distribution as the Desk uses to reinvest principal payments from the Federal Reserve’s holdings of agency debt and agency MBS in Treasury securities.”
The Fed has, in other words, officially launched its second bailout of Wall Street since 2008 and QE4.
The Dow Jones Industrial Average was down over 1900 points when the Fed made that announcement. The Dow then shaved 500 points from its losses and was hovering around a negative 1400 points at 1:26 p.m.