PrefBlog

The Fed has, apparently, been taking its responsibilities seriously. I have often observed that the Fed is doing exactly what Central Banks are supposed to do: make credit available at punitive rates against good collateral. As most recently discussed on February 10, many commentators, including Across the Curve and Econbrowser, have expressed the fear that the Fed is crossing the line from monetary policy into fiscal policy – which I agree would be a Bad Thing. Virtually everybody agrees that the discount window should not be used to prop up insolvent banks. There’s another bill being talked up that will allow retroactive confiscation of bonuses. Remember January 22, when I suggested bonus-eligible employess discount deferred bonuses by 50%? Better make it 80%. And keep a reserve against all cash received.

So, it was with great pleasure that I read:

Hartford Financial Services Group Inc., the insurer that lost $2.75 billion last year, dropped 7.8 percent in New York trading after being ousted from the federal program that buys short-term debt.

The insurer, which was excluded after its credit ratings were downgraded, will have to repay the $375 million in commercial paper “from existing sources of liquidity,” the company said in its annual report today. “Future deterioration of our capital position at a time when we are unable to access the commercial paper markets due to prevailing market conditions could have a material adverse effect on our liquidity.”

The exclusion of a somewhat shaky company from the liquidity provisions of the Commercial Paper Funding Facility is a good sign. Bloomberg has noted continued slow shrinking in the Fed’s balance sheet, but cautions that TALF (discussed February 10) will probably expand it again.

Dealbreaker passes along a note that the “Derivatives Markets Transparency and Accountability Act of 2009” otherwise known as the “Protect America from BONUSES while being kind to Small Furry Animals Act” (at least, that’s what it’s known as here). has been introduced. Let’s just hope it’s ordinary grandstanding.

Volume in the pref market picked up a little today, but there’s little discernable trend or volatility in prices. To an extent this is good for traders, as swaps can be legged (er … that means you can sell one to buy another, without fussing too much about simultaneity) with a lower chance that the market will move $2 against you before you blink.

This entry was posted on Thursday, February 12th, 2009 at 8:38 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.