[NYTr] "'Helicopter money" is so passe; this is a fleet of C-17s

[All the News That Doesn't Fit]

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'Helicopter money' is so passe; this is a fleet of C-17s


Financial Times - Dec 18, 2007
http://www.ft.com/cms/s/0/7ba8f586-ad5b-11dc-9386-0000779fd2ac.html?nclick_check=1

Investors Stunned by ECB's E350 Billion

By Ralph Atkins, Dave Shellock, and Gillian Tett

Short-term market interest rates in the eurozone plunged at their
fastest rate for more than a decade on Tuesday after the European
Central Bank stunned investors by pumping a record E348.6 billion
worth of funds into the markets.

The size of the injection -- which was intended to calm the markets
over the critical year-end period -- was twice as big as the ECB
had indicated would have been needed in normal circumstances.

The bank said some 390 private-sector banks in the eurozone had
requested funds, which have been offered for two weeks at 4.21 per
cent, well below the previous prevailing market rate.

"The sheer magnitude of the operation caught the market off guard,"
said Win Thin, Brown Brothers Harriman's senior currency strategist,
who said there was talk that banks from the US and UK might have
taken funds at lower rates than they could secure from their own
markets.

The emergency operation, which followed last week's co-ordinated
effort by Western central banks to ease pressures in the financial
system, prompted the two-week euro London interbank offered rate
(Libor) to fall a record 54 basis points to 4.40 per cent. The
one-month and three-month rates recorded their biggest falls for
nearly six years.

However, analysts warned further big declines were unlikely, given
that tensions remained high in the financial world. There are also
concerns in the market that the ECB may come under pressure to mop
up any excessive liquidity to prevent the return of inflationary
pressures.

Separately, the Bank of England also sought to offset market tensions
by conducting the first of its long-term refinancing operations,
auctioning L10 billion (E14 billion) in three-month funds at a
minimum rate of 5.36 per cent -- 14 basis points below the 5.5 per
cent base rate. Three-month sterling Libor fell for a fourth
successive session.

The US Federal Reserve will on Wednesday publish the results of an
exceptional $20 billion auction it performed on Monday to inject
funding into the US financial system.

The unprecedented series of co-ordinated central bank actions have
been sparked by signs of rising tensions in global money markets,
which some analysts attribute to the fact that private-sector banks
typically hoard funds at the end of the calendar year to show strong
balance sheets for reporting purposes.

However, a number of analysts fear banks are hoarding funds because
they fear further big credit losses next year.

In another sign of mounting pressures, the ECB revealed that its
emergency "marginal lending facility" -- which attracts a penal
interest rate -- had been tapped for E2.44 billion on Monday. That
suggests some European banks still face considerable difficulties
as a result of the global credit squeeze.