Fed Invests in the Treasury While Moody's Downgrades Banks

Thursday, September 22, 2011

Two major announcements hit Wall Street and Washington on Wednesday. The Federal Reserve unveiled its plan to invest $400 billion in Treasury securities in an effort to boost the economy, and Moody's downgraded the ratings of Bank of America, Citigroup, and Wells Fargo. How is all of this going to affect consumers and businesses? And how is divided Washington going to react?

Louise Story, Wall Street and finance reporter for The New York Times, weighs in on what the Fed's investment will mean for the economy, and what the Moody's downgrade means for banks and investors. The Takeaway's Washington correspondent Todd Zwillich discusses how these announcements are being met inside the Beltway.

Guests:

Louise Story and Todd Zwillich

Produced by:

Jen Poyant

Comments [2]

listener

Missing from the conversation was Bank of
America's policy of providing credit cards and other services to undocumented immigrants.
Is it not a mistake when banks start playing politics with encouragement or pressure from government like with the Community Reinvestment Act, rather than keeping with traditional ending practices and procedures? These politically motivated gimmicks and manipulations appear to be our financial undoing.

Sep. 22 2011 09:55 AM

The banks are still in trouble because of the sub-prime fiasco from which they never recovered. In 2008 the Federal Reserve injected liquidity to save the industry and economy; however, the core problem still lingers: underwater mortgages that have not been fully written down on the banks books. Until the mortgage crisis is resolved, the banking crisis will not be resolved.

The Fed's "Operation Twist" is not going to help much because it will not increase consumer demand enough to encourage the private sector to increase jobs. The consumer is scared. When the consumer is scared he hoards cash. The same is true with business. When they are not sure about the future, they do not invest in new plant and equipment. They stay liquid until they are certain that any money invested will provide a reasonable return in the future. Otherwise, they hang on to cash waiting for a brighter day. It does not matter that interest rates and prices are low; there is fear that they may fall further or worse yet, a major economic calamity may occur. Some call this a liquidity trap. http://bit.ly/rlyHZI

Sep. 22 2011 07:09 AM

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