Markets soar as central banks act on credit crunch
Last Updated: Tuesday, March 11, 2008 | 12:32 PM ET
North American stock markets surged Tuesday after the Bank of Canada and other central banks jointly announced they would pump more than $200 billion US into the financial system to ease a global credit squeeze.
The announcement came an hour before markets opened. By 11:45 a.m. ET, the S&P/TSX composite index was up 161 points to 13,166. The Dow Jones industrial average was up 177 points at 11,917. Both had triple-digit declines on Monday. European markets also surged.
The Bank of Canada's share of the liquidity boost is $4 billion, delivered in two installments — half on March 20 and the rest on April 3.
The move follows similar joint action taken last December when global credit markets were tightening.
"Pressures in some of these markets have recently increased again,'' the bank said in a statement on its website. "We all continue to work together and will take appropriate steps to address those liquidity pressures."
The Bank of Canada acted along with the U.S. Federal Reserve, the European Central Bank, the Bank of England, and the Swiss National Bank.
The Fed said it would make up to $200 billion US available to banks in exchange for debt that may be of less-than-stellar quality. The Fed said it would accept non-government mortgage-backed securities as collateral.
Loans would be secured for four weeks rather than the usual overnight time frame.
The lending facility "is intended to promote liquidity in the financing markets for treasury and other collateral and thus to foster the functioning of financial markets more generally," the Fed said.
The global credit squeeze has tightened in the last few weeks, making financial institutions more reluctant to make loans.
Another $200 billion, eh? Should be good to hold this creaking bloated mass together for another few weeks before everything starts to really take on water. The Fed in the U.S. can imagine up as much money as they want, offer negative interest rates, and this pile of festering shit is still going to start collapsing. It's akin to tying a horse onto the back of a 10,000 car freight train moving downhill towards a cliff and expecting it to pull the mass back to safety.
Okay the Fed's a messed-up anomaly in itself, but why are we sitting by and letting the central banks use our money to bail out all these shitty debt instruments? It's ridiculous.