|"I'll gladly pay you Tuesday for a hamburger today" |
- J. Wellington Wimpy (1932)
"coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity." [full text]
|The LIBOR-OIS rate is already near the zero bound, |
the OIS rate itself is around .5%
But actually, two other items were more surprising than this swap arrangement. Firstly, given the small - almost negligible - OIS+50 rate decrease from OIS+100, the equity market reaction was overdone, despite good U.S. economic data on jobs and production, and last week's rip-roaring start to the holiday shopping season (pepper spraying aside). Yes, a rally simply based on U.S. economic data was in the cards, but much of that 491 point upsurge was based upon a likely faulty overreaction to, and misunderstanding of, the Fed's currency swap announcement.
Secondly, these European crisis-related currency swaps are nothing new. The Fed's done this many times before during the world's present financial meltdown. See these:
- Press release, September 18, 2008
- Press release, April 6, 2009
- Press release, May 9, 2010
- Press release, December 21, 2010
- Press release, June 29, 2011
- Press release, November 30, 2011 (today's announcement)
So, what's so "new" today? We'll learn that some tomorrow's tomorrow . . .