The $200 Billion MASTER Plan ?

The Federal Reserve's recently announced $200 Billion plan allows the prime brokers (C, GS, MER, BAC, BSC, LEH, MS, etc.) to use some of their troubled assets (including triple A rated mortgage-backed assets) as collateral for borrowing against $200 Billion worth of new loans being issued by the Fed in order to stimulate the economy.

This is a rather large deal because the Fed is in effect creating a temporary market/demand for the toxic 'assets' that are severely handicapping the ability of the brokers to lend/take on additional balance sheet risk in the 'free market'. One important point to note is that this market for triple A rated mortgage-backed debt may only be temporary- the current terms expire in 28 days...but the Fed has stated that, if needed, it would consider renewing the terms in the future. Could the Fed be willing to continue to renew its terms and thereby indirectly promote liquidity into the system until the credit markets FINALLY stabilize??? Maybe all of wall street's problems wouldn't be solved by this initiative (these shoddy assets will still exist and may continue to lose value until HOUSING stabilizes) but it sure does seem like it could prevent systematic failure in the U.S. financial + credit complex.

The Fed's action indicates it is aware and concerned about the current global 'credit crunch' seizing up debt markets worldwide. It is also introducing a new tool to fight against the 'illiquidity' created by the credit crisis...one that doesn't involve reducing interest rates...one that may also temper the market's concerns of inflation because it does not directly pressure the U.S. dollar downward. If the Fed is able to succeed with this tool then could it mean we are we finally nearing the bottom of the U.S. dollar's decline against the euro/yen???

This is good news and FINALLY shows some creativity by the Fed !

Full Disclosure: I currently own shares of GS.