by Calculated Risk on 3/08/2008 06:38:00 PM

Professor Krugman writes: What’s Ben doing? (Very wonkish)

The financial crisis seems to have entered its third wave. Panic in August, then partial recovery thanks to lots of money thrown at the system by the Fed. Renewed panic late fall, then partial recovery thanks to even more money thrown in, especially the Temporary Auction Facility. And panic has set in yet again:

The second graph is the A2P2 spread from the Fed's Commercial Paper report. This also shows the 3rd wave of the financial crisis.

I recommend Krugman's piece for those that want to understand what the Fed is doing (and why it is sterilized). Also see Professor Hamilton's piece from December: Monetary policy using the asset side of the Fed's balance sheet

Several people have sent me this piece from interfluidity: Repurchase agreements and covert nationalization. Steve Randy Waldman does a good job of describing the situation, but I think he takes it too far. As Waldman notes, the Fed offers loans only against certain collateral, and requires that loans be overcollateralized. I've seen the lendable amount sheet, and I think the Fed is pretty well protected - so I think the author takes it one step too far to call this "covert nationalization".