Fed Announces $200-Billion Securities Swaps to Help

Los Angeles Times (03/12/08); Petruno, Tom; Reynolds, Maura
The Federal Reserve surprised many this week with its decision to begin temporarily lending major banks and brokerages as much as $200 billion in U.S. Treasury securities that it owns. In exchange, the Fed will receive mortgage-backed securities, many of which have lost value because of market jitters over the rising number of loan defaults. Central bank officials hope that, armed with rock-solid Treasury bonds, financial firms will return to normal lending and investing practices and that the credit crisis will subsequently level off. Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in Manhattan, states, "They've pulled out all the stops to try and fix this problem."