The Federal Reserve’s new term auction facility – and co-ordinated action with other central banks round the world – addresses the problem of liquidity in the financial system but will do little to alleviate the credit crunch, believes David Rosenberg, North American economist at Merrill Lynch.
He says: “The facility does not do anything to prevent existing credits from going bad and won’t stop credit issues from continuing to surface.”
Mr Rosenberg says: “The size of the auctions are actually fairly small . . . and in no way does this solve . . . the massive writedowns and losses the banking sector is likely going to incur this cycle.”
He also says: “The Fed continues to underestimate the extent of the housing downturn, the heightened prospect of a consumer recession and a spreading credit crunch. In our view, this TAF does not address what is happening in the broad economy, nor does it address issues surrounding bank capital pressures and rising delinquency rates . . . from subprime to prime mortgages, credit cards, auto finance and commercial real estate, and the impact this loan quality deterioration is exerting on the availability of credit.
read more:View of the day: Federal Reserve
No comments:
Post a Comment