Es dürfte bekannt sein, dass alle Staaten der Welt überschuldet sind. Vor diesem Hintergrund ist es erstaunlich, dass die alles entscheidende Frage im Mainstream gar nicht gestellt wird: Woher soll das Geld eigentlich kommen, welches Regierungen in aller Welt zur Rettung des Finanzsystems mobilisieren wollen?
Dies kann nur über Schulden laufen. Doch wer soll diese Schulden letztlich kaufen? Derzeit ist kaum jemand auszumachen, auch wenn die Rendite der 10jährigen US-Anleihen unter 3% gefallen ist. Wenn die Schuldenmacherei so weiter geht, wird sie bald bei 30% stehen. Und dann geht das Licht aus. Ein für alle Mal.
Müssen wir uns eigentlich so sehr gegen die - noch aktiven - Selbstreinigungskräfte des Finanzsystems wehren? Ist es nicht normal, dass sich Katerstimmung einstellt, nach Jahren des Exzesses? Ist eine Rezession, eine Deflation, ein Luftrauslassen wirklich so schlimm? Ebnet dieser Prozeß nicht gerade deshalb einen Weg in eine bessere Zukunft?
Wenn dies jetzt verhindert wird, dann droht der Totalschaden. Da helfen auch keine Rettungspakete, deren Wirkungskraft sowieso nur mit dem berühmten Tropfen auf den heissen Stein zu vergleichen sind.
Nach einer durchzechten Nacht ist ein Kater unausweichlich. Wenn allerdings am nächsten Morgen weiter gesoffen wird, dann droht das Delirium.
Angesichts der hektischen Aktivitäten der Hyperverschuldung rings um den Globus geben die Staaten ihren letzten Trumpf aus der Hand: Die Bonität. Wenn niemand mehr Staatsanleihen kauft, dann ist der Untergang unausweichlich.
Darüber dürften auch die niedrigeren Renditen für Staatsanleihen nicht hinwegtäuschen. Im Gegenteil. Der Staat ist derzeit nichts anderes als ein Krisengewinnler. Weil Anleger keine Unternehmensanleihen mehr kaufen, kein Geld mehr der Privatwirtschaft zur Verfügung stellen, profitieren die Staaten - und erfreuen sich einer trügerischen Sicherheit. Doch der Zeitpunkt, an dem auch sie kein Geld mehr kriegen, ist näher gerückt.
Meldungen von heute:
US-Demokraten wollen 500 Mrd Dollar Konjunkturpaket
Die Demokraten im US-Repräsentantenhaus wollen einem Berater der Partei zufolge im Januar ein Konjunkturpaket über voraussichtlich rund 500 Milliarden Dollar auf den Weg bringen. Das Paket solle die vom künftigen Präsidenten Barack Obama angestrebte Steuersenkung für die Mittelschicht enthalten, erklärte der Berater am Montag. Zudem sollten Milliarden für Infrastrukturprogramme und zur Förderung erneuerbarer Energien ausgegeben werden.
CDU will Banken-Rettungsschirm nachbessern
Die CDU-Spitze plant Nachbesserungen am knapp500 Mrd. Euro schweren Rettungsschirm für die deutschen Banken. Um dasstaatliche Rettungsangebot für die Institute attraktiver zu machen, erwägt dieParteiführung nach Informationen der Financial Times Deutschland(Dienstagsausgabe) eine Senkung der Gebühren, die Banken für Staatsbürgschaftenzahlen müssen. Derzeit gilt eine Gebühr von zwei Prozent der Bürgschaftssummeals Orientierung.
Bernanke mit neuen Ideen:
- decisive action needed to protect economy
- more rate cuts feasible, lays out other steps
- Fed could buy long-dated Treasuries
Federal Reserve Chairman Ben Bernanke on Monday urged decisive action to protect the U.S. economy and said the central bank had alternative tools it could employ to help as interest rates approach zero. "Our nation's economic policy must vigorously address the substantial risks to financial stability and economic growth," Bernanke told the Greater Austin Chamber of Commerce. On a day when the arbiter of U.S. business cycles said the United States fell into recession last December, Bernanke said the economy was still under "considerable stress" and had slipped further since markets crumbled anew in September.
GOING TO ZERO?
The Fed is widely expected to lower benchmark U.S. interest rates by a half-percentage point to 0.5 percent at its next scheduled meeting on Dec. 15-16. It is also expected to discuss what other policy tools could be used, and Bernanke's speech was seen as a game plan for likely next steps.
At 0.5 percent, the overnight federal funds would be the lowest on records that date back to mid-1958. Bets on a zero rate by January are also increasing. "While (the Fed) could lower rates a little bit more, the fact is that if we have to do more, most of it is going to come in the form of something other than just straight interest rate cuts," said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut.
In calling for vigorous action to support the economy, Bernanke said the economy was likely to be sluggish for some time. "The likely duration of the financial turmoil is difficult to judge, and thus the uncertainty surrounding the economic outlook is unusually large. But even if the functioning of financial markets continues to improve, economic conditions will probably remain weak for a time," he said.
But he said there was no comparison between the current downturn -- already the third-longest since the 1930s -- and the Great Depression, when the U.S. economy contracted for over a decade, one in four U.S. workers was unemployed and bank failures were rampant. "Let's put that out of our minds. There is no comparison in terms of severity."
Bernanke drew a distinction between the aggressive actions he and his colleagues have taken and blunders by the 1930s-era Fed, including excessively tight monetary policy and inaction as the financial system collapsed. He said he was being guided in part by his reading of history. "I made my own mistakes, but I don't want to make someone else's mistakes," he said.
Die komplette Rede in englisch von Bernanke auf der folgenden Seite. Schockierend lesenswert:{mospagebreak}
Chairman Ben S. Bernanke
At the Greater Austin Chamber of Commerce, Austin, Texas
December 1, 2008
Federal Reserve Policies in the Financial Crisis
It is a privilege for me to be here in Texas, and I would like tothank the Austin Chamber for hosting this luncheon. The Texas economyis strong and diversified, accounting for more than a trillion dollarsof output last year. However, our nation, and Texas too, is beingtested by economic and financial challenges. Those challenges and theFederal Reserve's policy responses are the topic of my remarks today.
Federal Reserve Policies during the Crisis
As youknow, this extraordinary period of financial turbulence is now wellinto its second year. Triggered by the contraction of the U.S. housingmarket that began in 2006 and the associated rise in delinquencies onsubprime mortgages, the crisis has become global and is now affecting awide range of financial institutions, asset classes, and markets.Constraints on credit availability and slumping asset values have inturn helped to generate a substantial slowing in economic activity.
The Federal Reserve's strategy for dealing with the financial crisisand its economic consequences has had three components. First, tooffset to the extent possible the effects of the crisis on creditconditions and the broader economy, the Federal Open Market Committee(FOMC) has aggressively eased monetary policy. The easing campaignbegan in September 2007, shortly after the turbulence began, with a cutof 50 basis points in the target for the federal funds rate. Thecumulative reductions in the target rate reached 100 basis points--thatis, a full percentage point--by the end of 2007. As indications ofeconomic weakness proliferated, the Committee continued to respond,reducing the target rate by an additional 225 basis points by thespring of this year. By way of historical comparison, this policyresponse stands out as exceptionally rapid and proactive. In takingthese actions, we aimed not only to cushion the direct effects of thefinancial turbulence on the economy, but also to reduce the risk of aso-called adverse feedback loop in which economic weakness exacerbatesfinancial stress, which, in turn, leads to further economic damage.Unfortunately, despite the support provided by monetary policy, theintensification of the financial turbulence this fall has led to afurther deterioration in the economic outlook. The Committee againresponded by cutting the target for the federal funds rate anadditional 100 basis points in October. Half of that reduction came aspart of an unprecedented coordinated interest rate cut by six majorcentral banks on October 8.
The Committee's rapid monetary easing was not without risks. Someobservers expressed concern at the time that these policies would stokeinflation, and, indeed, inflation reached high levels earlier thisyear, mostly as the result of a surge in the prices of oil and othercommodities. Throughout this period, the Committee remained closelyattuned to inflation developments. Because control of inflationrequires that the public's longer-term inflation expectations remainwell anchored, we paid particularly close attention to indicators ofthose expectations, as inferred, for example, from financial marketsand from surveys of households and businesses. However, the Committeemaintained the view that the rapid rise in commodity prices primarilyreflected sharply increased demand for raw materials in emerging marketeconomies, in combination with constraints on the supply of thesematerials, rather than general inflationary pressures. We expectedthat, at some point, global economic growth and the associated growthin the demand for commodities would moderate, which would result in aleveling out of commodity prices, consistent with the predictions offutures markets. As you know, commodity prices peaked during the summerand, rather than leveling out, have actually fallen dramatically withthe weakening in global economic activity. As a consequence, overallinflation appears set to decline significantly over the next yeartoward levels consistent with price stability.
Although monetary easing likely offset some part of the economiceffects of the financial turmoil, that offset has been incomplete, aswidening credit spreads and more restrictive lending standards havecontributed to tight overall financial conditions. In particular, manytraditional funding sources for financial institutions and markets havedried up, and banks and other lenders have found their ability tosecuritize mortgages, auto loans, credit card receivables, studentloans, and other forms of credit greatly curtailed. Consequently, thesecond component of the Federal Reserve's strategy has been to supportthe functioning of credit markets and to reduce financial strains byproviding liquidity to the private sector--that is, by lending cash orits equivalent secured with relatively illiquid assets.
To ensure that adequate liquidity is available, consistent with thecentral bank's traditional role as the liquidity provider of lastresort, the Federal Reserve has taken a number of extraordinary steps.For instance, to provide banks and other depositories easier access toliquidity, we narrowed the spread of the primary credit rate (the rateat which banks borrow from the Fed's discount window) over the targetfederal funds rate from 100 basis points to 25 basis points; extendedthe term for which banks can borrow from the discount window to up to90 days; and developed a program, called the Term Auction Facility,under which predetermined amounts of credit are auctioned to depositoryinstitutions for terms of up to 84 days. These innovations resulted inlarge increases in the amount of Federal Reserve credit extended to thebanking system. Following the funding crises faced by Bear Stearns andother institutions this past spring, we also expanded our liquidityprograms to include primary dealers in the government securitiesmarket. It should be emphasized that the loans that we make to banksand primary dealers through our standing facilities are bothovercollateralized and made with recourse to the borrowing firm, whichserves to minimize the Federal Reserve's exposure to credit risk. Tofurther improve funding conditions, the Federal Reserve has alsorecently introduced facilities to purchase highly rated commercialpaper at a term of three months and to provide backup liquidity formoney market mutual funds.
In our globalized financial markets, the provision of dollarliquidity has international as well as domestic aspects. To improvedollar funding conditions in important foreign markets, the FederalReserve has approved bilateral currency swap agreements with 14 foreigncentral banks. Swap facilities allow each of the central banks involvedto borrow foreign currency from the other; in this case, foreigncentral banks such as the Bank of Japan, the European Central Bank, theBank of England, and the Swiss National Bank have borrowed dollars fromthe Federal Reserve to re-lend to banks in their jurisdictions. Becauseshort-term funding markets are interconnected, the provision of dollarliquidity in major foreign markets eases conditions in dollar fundingmarkets globally, including here in the United States. Importantly,these swap arrangements pose essentially no credit risk because ourcounterparties are the foreign central banks themselves, which takeresponsibility for the extension of dollar credit within theirjurisdictions.
Judging the effectiveness of the Federal Reserve's liquidityprograms is difficult. Obviously, they have not yet returned privatecredit markets to normal functioning. But I am confident that marketfunctioning would have been more seriously impaired in the absence ofour actions. My reading of the evidence and the reports we havereceived is that these programs have been helpful in lowering spreadsin certain short-term funding markets, enabling financial andnonfinancial businesses to obtain credit that would have been costly ordifficult to obtain elsewhere, and allowing a more orderly process ofasset sales and the necessary deleveraging by financial institutions.Ultimately, however, market participants themselves must address thefundamental sources of financial strains by raising new capital,restructuring balance sheets, and improving risk management. Thisprocess is likely to take some time. The Federal Reserve's variousliquidity measures should help facilitate that process indirectly byboosting investor confidence and by reducing the risk of severedisruption during the period of adjustment. Once financial conditionsbecome more normal, the extraordinary provision of liquidity by theFederal Reserve will no longer be needed, and financial institutionswill again look to private counterparties, and not central banks, as asource of ongoing funding.
Consistent with the historical mission of the Federal Reserve, thethird component of our policy response has been to use all ouravailable tools to promote financial stability, which is essential forhealthy economic growth. At times, this has required working topreserve the stability of systemically critical financial institutions,so as to avoid further costly disruptions to both the financial systemand the broader economy during this extraordinary period. Inparticular, the Federal Reserve collaborated with the Treasury tofacilitate the acquisition of the investment bank Bear Stearns byJPMorgan Chase and to stabilize the large insurer, AmericanInternational Group (AIG). We worked with the Treasury and the FederalDeposit Insurance Corporation (FDIC) to put together a package ofguarantees, liquidity access, and capital for Citigroup. Other effortsinclude our support of the actions by the Federal Housing FinanceAgency and the Treasury to place the government-sponsored enterprises(GSEs) Fannie Mae and Freddie Mac into conservatorship and our workwith the FDIC and other bank regulators to assist in the resolution oftroubled depositories, such as Wachovia. In each case, we judged thatthe failure of the institution in question would have posed substantialrisks to the financial system and thus to the economy.
The Federal Reserve has worked to promote financial stabilitythrough other means as well, such as strengthening the financialinfrastructure. For example, the Federal Reserve Bank of New York hasled cooperative efforts to improve the clearing and settlementprocedures for credit default swaps and other over-the-counterderivatives. In addition, the Federal Reserve is collaborating with theSecurities and Exchange Commission and the Commodity Futures TradingCommission to facilitate the development of central counterparties forthe trading of credit default swaps. Properly managed, centralcounterparties can mitigate the counterparty risk that has proved asource of contagion in the past year.
The Federal Reserve's efforts in conjunction with other agencies toprevent the failure of systemically important firms have beencontroversial at times. One view holds that intervening to prevent thefailure of a financial firm is counterproductive, because it leads toerosion of market discipline and creates moral hazard. As a generalmatter, I agree that preserving market discipline is extremelyimportant, and, accordingly, the government should intervene in marketsonly in exceptional circumstances. However, in my view, the failure ofa major financial institution at a time when financial markets arealready quite fragile poses too great a threat to financial andeconomic stability to be ignored. In such cases, intervention isnecessary to protect the public interest. The problems of moral hazardand the existence of institutions that are "too big to fail" mustcertainly be addressed, but the right way to do this is throughregulatory changes, improvements in the financial infrastructure, andother measures that will prevent a situation like this from recurring.Going forward, reforming the system to enhance stability and to addressthe problem of "too big to fail" should be a top priority for lawmakersand regulators.
In particular, recent events have revealed a serious weakness of oursystem: the absence of well-defined procedures and authorities fordealing with the potential failure of a systemically important nonbankfinancial institution. In the case of federally insured depositoryinstitutions, the FDIC has the necessary authority to resolve failingfirms; indeed, in situations in which the failure of a firm is judgedto pose a systemic risk, the FDIC's powers are quite broad andflexible. No comparable framework exists for nondepository financialinstitutions. The Federal Reserve is authorized to lend tonondepositories under unusual and exigent circumstances, but such loansmust be backed by collateral sufficient to provide reasonable assurancethat they will be repaid; if such collateral is not available, the Fedcannot lend. And until recently, the Treasury also did not have theauthority to inject capital to prevent the disorderly failure ofsystemically significant private institutions.
In the absence of an appropriate, comprehensive legal or regulatoryframework, the Federal Reserve and the Treasury dealt with the cases ofBear Stearns and AIG using the tools available. To avoid the failure ofBear Stearns, we facilitated the purchase of Bear Stearns by JPMorganChase by means of a Federal Reserve loan, backed by assets of BearStearns and a partial guarantee from JPMorgan. In the case of AIG, wejudged that emergency Federal Reserve credit would be adequatelysecured by AIG's assets. However, neither route proved feasible in thecase of the investment bank Lehman Brothers. No buyer for the firm wasforthcoming, and the available collateral fell well short of the amountneeded to secure a Federal Reserve loan sufficient to pay off thefirm's counterparties and continue operations. The firm's failure wasthus unavoidable, given the legal constraints, and the Federal Reserveand the Treasury had no choice but to try instead to mitigate thefallout from that event.
Fortunately, we now have tools to address any similar situation thatmight arise in the future. The intensification of the financial crisisthis fall made clear that a comprehensive approach involving the fiscalauthorities was needed to address more effectively the problems of thefinancial system. On that basis, the Administration, with the supportof the Federal Reserve, asked the Congress for a new program aimed atstabilizing our financial markets. The resulting legislation, theEmergency Economic Stabilization Act (EESA), provides the necessaryauthorizations and resources to strengthen the financial system and, inparticular, to deal with the potential failure of a systemicallyimportant firm. Notably, funds provided under the act facilitated therecent government actions to stabilize Citigroup. More broadly, the actallows the Treasury to recapitalize and stabilize our banking system bypurchasing preferred stock in financial institutions. The CapitalPurchase Program is voluntary and designed to encourage participationby a broad range of institutions while maintaining the ability ofparticipating institutions to raise private capital. Up to $250 billionhas been committed to this program. In addition to measures beingimplemented by the Treasury, the FDIC has announced programs toguarantee selected liabilities of FDIC-insured depository institutionsand their holding companies. With time, these measures should helpstrengthen the banking system, allowing credit to flow more freely tosupport economic growth.
Collectively, the Treasury, the FDIC, and the Federal Reserve arenow much better equipped to address potential systemic risks quicklyand effectively, and we are firmly committed to doing so. However,measures such as the Capital Purchase Program and the FDIC guaranteeare temporary. In the longer term, the development of a statutoryframework for resolving systemically critical nonbank financialinstitutions in ways that do not destabilize the financial system as awhole must be another key priority.
Economic Outlook
Despite the efforts of the FederalReserve and other policymakers, the U.S. economy remains underconsiderable stress. Economic activity was weakening even before theintensification of the financial crisis this fall. The sharp falloff inconsumer spending during the summer was particularly striking.According to the latest estimates, real gross domestic product (GDP)declined at an annual rate of 0.5 percent in the third quarter, withpersonal consumption falling at an annual rate of 3.7 percent.
However, economic activity appears to have downshifted further inthe wake of the deterioration in financial conditions in September.Employment losses, which had been averaging about 100,000 per month formuch of the year, accelerated to more than 250,000 per month, onaverage, in September and October, and the unemployment rate jumped to6.5 percent in October. Moreover, recent increases in the number of newclaims for unemployment insurance suggest that labor market conditionsworsened further in November. Housing markets remain weak, with lowdemand and the increased number of distressed properties on the marketcontributing to further declines in house prices and ongoing reductionsin new construction. In reaction to worse economic prospects andtightening credit conditions, households have continued to retrench,putting consumer spending on a pace to post another sharp decline inthe fourth quarter. In particular, sales of light motor vehicles fellto an annual rate of 10-1/2 million units in October, the lowest levelsince 1983, and November sales reports are downbeat.
Business activity also slowed in recent months. Excluding theeffects of the hurricanes and the Boeing strike on production,manufacturing output fell 2 percent over the months of September andOctober, orders and shipments of nondefense capital goods fell markedlyin October, and most survey measures of business conditions are at orclose to record lows.
Amid the bad news, there have been some positives. The pronounceddeclines in the prices for crude oil and other commodities have helpedto reverse what had been a significant drag on household purchasingpower through much of the year. And there have been a few tentativesigns of stabilization in financial markets. For instance, short-termfunding costs for banks and commercial paper issuers have come downrecently, and issuance of investment-grade bonds by nonfinancialcorporations appears to have held up well. Banks have recently issuedbonds backed by the FDIC guarantee. That said, investor concerns aboutcredit quality have increased further, and risk aversion remainsintense. As a result, in almost all credit markets, spreads remainwider, maturities shorter, and availability more constrained than wasthe case before the intensification of the crisis this fall.
The likely duration of the financial turmoil is difficult to judge,and thus the uncertainty surrounding the economic outlook is unusuallylarge. But even if the functioning of financial markets continues toimprove, economic conditions will probably remain weak for a time. Inparticular, household spending likely will continue to be depressed bythe declines to date in household wealth, cumulating job losses, weakconsumer confidence, and a lack of credit availability.
The global economy has also slowed. Many industrial countries wereaffected by the financial crisis from the beginning, but the latesteconomic data point to a more noticeable weakening of conditions. Andemerging market economies, which were little affected at first, areslowing now as well. One implication of these developments is thatexports are not likely to be as great a source of strength for U.S.economic activity in coming quarters as they had been earlier thisyear.
At the same time, the increase in economic slack and the declines incommodity prices and import prices have alleviated upward pressures onconsumer prices. Moreover, inflation expectations appear to have easedslightly. These developments should bring inflation down to levelsconsistent with price stability.
Although the near-term outlook for the economy is weak, a number offactors are likely over time to promote the return of solid gains ineconomic activity and employment in the context of low and stableinflation. Among those factors are the stimulus provided by monetarypolicy and possible fiscal actions, the eventual stabilization inhousing markets as the correction runs its course, and the underlyingstrengths and recuperative powers of our economy. The time needed foreconomic recovery, however, will depend greatly on the pace at whichfinancial and credit markets return to more-normal functioning.
The Outlook for Policy
Going forward, our nation'seconomic policy must vigorously address the substantial risks tofinancial stability and economic growth that we face. I will concludemy remarks by discussing the policy options of the Federal Reserve,focusing on the three aspects of policy that I laid out earlier:interest rate policy, liquidity policy, and policies to stabilize thefinancial system.
Regarding interest rate policy, although further reductions from thecurrent federal funds rate target of 1 percent are certainly feasible,at this point the scope for using conventional interest rate policiesto support the economy is obviously limited. Indeed, the actual federalfunds rate has been trading consistently below the Committee's 1percent target in recent weeks, reflecting the large quantity ofreserves that our lending activities have put into the system. Inprinciple, our ability to pay interest on excess reserves at a rateequal to the funds rate target, as we have been doing, should keep theactual rate near the target, because banks should have no incentive tolend overnight funds at a rate lower than what they can receive fromthe Federal Reserve. In practice, however, several factors have servedto depress the market rate below the target. One such factor is thepresence in the market of large suppliers of funds, notably thegovernment-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac,which are not eligible to receive interest on reserves and are thuswilling to lend overnight federal funds at rates below the target.1 We will continue to explore ways to keep the effective federal funds rate closer to the target.
Although conventional interest rate policy is constrained by thefact that nominal interest rates cannot fall below zero, the secondarrow in the Federal Reserve's quiver--the provision ofliquidity--remains effective. Indeed, there are several means by whichthe Fed could influence financial conditions through the use of itsbalance sheet, beyond expanding our lending to financial institutions.First, the Fed could purchase longer-term Treasury or agency securitieson the open market in substantial quantities. This approach mightinfluence the yields on these securities, thus helping to spuraggregate demand. Indeed, last week the Fed announced plans to purchaseup to $100 billion in GSE debt and up to $500 billion in GSEmortgage-backed securities over the next few quarters. It isencouraging that the announcement of that action was met by a fall inmortgage interest rates.
Second, the Federal Reserve can provide backstop liquidity not onlyto financial institutions but also directly to certain financialmarkets, as we have recently done for the commercial paper market. Suchprograms are promising because they sidestep banks and primary dealersto provide liquidity directly to borrowers or investors in key creditmarkets. In this spirit, the Federal Reserve and the Treasury jointlyannounced last week a facility that will lend against asset-backedsecurities collateralized by student loans, auto loans, credit cardloans, and loans guaranteed by the Small Business Administration. TheFederal Reserve's credit risk exposure in this facility will beminimized because the collateral will be subject to a "haircut" andbecause the Treasury is providing $20 billion of EESA capital assupplementary loss protection. Each of these approaches has thepotential to improve the functioning of financial markets and tostimulate the economy.
Expanding the provision of liquidity leads also to further expansionof the balance sheet of the Federal Reserve. To avoid inflation in thelong run and to allow short-term interest rates ultimately to return tonormal levels, the Fed's balance sheet will eventually have to bebrought back to a more sustainable level. The FOMC will ensure thatthat is done in a timely way. However, that is an issue for the future;for now, the goal of policy must be to support financial markets andthe economy.
Finally, working together with the Treasury, the FDIC, and otheragencies, we must take all steps necessary to minimize systemic risk.The capital injections into the banking system under the EESA, theFDIC's guarantee program, and the provision of liquidity by the FederalReserve have already served to greatly reduce the risk that asystemically important financial institution will fail. We at theFederal Reserve and our colleagues at other federal agencies willcarefully monitor the conditions of all key financial institutions andstand ready to act as needed to preserve their viability in thisdifficult financial environment.
I have not discussed the international response to the crisis today,but policymakers abroad as well as those in the United States havetaken a series of extraordinary steps to address an extraordinarysituation. These steps include strong fiscal and monetary actions aswell as measures to stabilize key financial institutions and marketsand to strengthen the financial infrastructure. I am not suggesting theway forward will be easy. But I believe that the policy responses takenhere and by our international partners, together with the underlyingvitality and resilience of the American economy, will help to restoreconfidence to our financial system and place our economy back on thepath to vigorous growth.
Footnotes
1. Banks have an incentive to borrow from theGSEs and then redeposit the funds at the Federal Reserve; as a result,banks earn a sure profit equal to the difference between the rate theypay the GSEs and the rate they receive on excess reserves. However,thus far, this type of arbitrage has not been occurring on a sufficientscale, perhaps because banks have not yet fully adjusted theirreserve-management practices to take advantage of this opportunity.
