Is This It?

Yesterday the Federal Reserve offered $25 billion in its Term Securities Lending Facility, a specialised lending program that was put in placed after Bear Stearns collapsed. Under the program, “primary broker-dealers” can exchange “illiquid” securities securities for Treasurys. Yesterday no one decided to make that trade.

There are two ways to read this result. The first is that no firms felt they needed aid to meet short-term funding needs. The second is: “Holy crap! Something is seriously broken!”

It could well be that Geithner’s Pee-Pip deal is so attractive to banks–after all it offers a huge subsidy–that they are holding the assets to sell later rather than borrowing against them in the TSLF.

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