| Cleveland Fed's Pianalto says Fed helped bolster liquidity in markets UPDATE
WASHINGTON (Thomson Financial) - The Federal Reserve's recent wave of "creative policy responses" to the mortgage and credit crisis has helped improve liquidity in these markets, and should help set the stage for an economic recovery, Federal Reserve Bank of Cleveland President Sandra Pianalto said today. "Collectively, these innovations provide for much longer terms of lending, broader types of collateral, a wider class of counterparties, and a tighter spread between the primary credit rate and the target federal funds rate," she said in remarks delivered in Ohio today that were made available to reporters. "All of these innovations were designed to bolster market liquidity and promote orderly market functioning," she said. Pianalto cited the creation of a new lending facility that allows primary securities dealers to use private securities as collateral for funds they borrow from the Fed.
Subprime lender created 'time bomb,' report says
Bankrupt mortgage lender New Century Financial Corp. used improper accounting practices while making risky loans, creating "a ticking time bomb" that led to the company's rapid downfall, a court examiner said in a report released Wednesday. Michael J. Missal concluded that New Century engaged in at least seven improper accounting practices that led the company to report incorrect financial information to Wall Street for fiscal 2005 and the first nine months of 2006. .
Public entities in debt vortex
States, cities, hospitals and major public agencies battered by wild interest rate swings in one sector of the municipal bond market are scrambling to refinance the debt as they add up the damages to their budgets and nurse some hard feelings. The highest-profile fallout so far is the tightening of the student-loan market, including the suspension of new student loans by agencies in Pennsylvania, Iowa and Michigan. Budget makers who had planned on paying around 4 percent on borrowed funds as recently as December are searching for ways to fit rates of 5 percent to 10 percent into their budgets. So far, most affected institutions appear to be withstanding the tens of millions of dollars in additional costs without laying off workers or shutting down crucial services.
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