Financial Times:Nov.23: The New York Federal Reserve sold $370 billion dollars of 'liquidity options' in an effort to quell panic about the millennium bug. (As I understand, these are derivitives.) QUES: Just who will benefit from these options and why should there be fear if the gov said it will be nothing more than a 3 day storm, more or less? Plus, this appears to be another example of the gov taking care of the big guys at the expense of the little, nicht war?

-- robert gridlock (plutusx2@yahoo.com), November 30, 1999

Answers

Might have a look at another post here "are 370,000,000,000 USD enough to calm Y2K fears Link http://www.greenspun.com/bboard/q-and-a-fetch- msg.tcl?msg_id=001qpD

To your Q: IMHO this will give banks the possibility to reserve now short term liquidity for future scenarios where it might be of use / need.

Banks are lending money to consumers / SME Banks are buying this money from the FED / investors If there are no investors (due to a Y2K disruption) the banks will run out of money (not bills, thats different) So this might be their insurance.

-- Rainbow (Rainbow@123easy.net), November 30, 1999.

Are $370,000,000,000 enough to calm Y2K fears?

-- (Dir@ect.link), November 30, 1999.

A very important post. I believe this is a first, the FED selling options, calls no less. The way this works is that they are selling an option which allows the banks to use cash at a rate of Fed Funds plus 150 basis points. At today's opening rates, the Fed funds were at 5.75, that would put a cap on borrowing at 7.20 if there was a need to trigger the calls. In other words, the Fed Funds rate would have to go up at least 150 points for these calls to be in the money. Since they seem to be selling like hotcakes, that would indicate that the banks are comfortable giving up what must be a serious premium for this insurance. It will be interesting to see if these are triggered. At a bare minimum, investors should realize when reading this that the shit is truly in the fan at this time regarding liquidity. It appears to me that the bank boys fully expect a run and subsequent liquidity crisis. I hope that I'm wrong.

PS-anyone seen the Yen/Dollar lately? It's set to bust a hundred despite best efforts from the CB's. BOJ was seen blowing about 2 billion to no avail and the Fed was seen buying an equal amount of Treasuries. Strange days indeed. Crude took a dump today. Stats were so so, Sadamn is waffling. I think trend is still up, just a technical turn.

-- Gordon (g_gecko_69@hotmail.com), November 30, 1999.