Fed ready to play pawnbroker to the Western world

If you're a 'non-bank,' can you get one of these loans to buy gold?

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Fed Cuts Discount Rate,
Says Dealers May Borrow

By Scott Lanman
Bloomberg News Service
Sunday, March 16, 2008

http://www.bloomberg.com/apps/news?pid=20601087&sid=a5MdIqIevEW0&refer=home

WASHINGTON -- The Federal Reserve reduced the rate on direct loans to commercial banks by a quarter point and said it will allow primary dealers to borrow at the rate in exchange for a "broad range" of investment-grade collateral.

The central bank, in a statement today in Washington, also extended the maximum term of discount-window loans to 90 days from 30 days. The Fed approved the financing arrangement announced by JPMorgan Chase & Co. and Bear Stearns Cos. JPMorgan separately agreed to buy Bear Stearns for about $2 a share.

Fed Chairman Ben S. Bernanke is stepping up efforts to keep strains in financial markets from spiraling into a full-blown meltdown. Last week the central bank agreed to emergency loans to a non-bank, Bear Stearns, for the first time since the 1960s. Fed officials also announced a program to swap $200 billion in Treasuries for debt including mortgage-backed securities.

The Fed lowered the discount rate to 3.25 percent from 3.5 percent, narrowing the spread with the federal funds rate to a quarter point from a half point. From tomorrow, primary dealers will be able to borrow at the rate under a new lending facility, to be in place for at least six months, the Fed said.

The actions are "designed to bolster market liquidity and promote orderly market functioning," the Fed said. "Liquid, well-functioning markets are essential for the promotion of economic growth."

Investors expect the Fed to lower its benchmark rate by as much as a full percentage point, to 2 percent, when policy makers meet March 18. That would exceed the 0.75-point emergency reduction on Jan. 22, which is the largest cut since the overnight interbank lending rate became the main tool of monetary policy about two decades ago.

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