"Helicopter Ben" to the rescue

Federal Reserve Chairman Ben Bernanke rides to the rescue this morning with a half-point cut in the discount rate. The discount rate is not to be confused with the Fed Funds rate, which is the rate banks charge among themselves and is used as the benchmark by which many short-term rates are based off of; the discount rate, by contrast, is the rate that banks pay to borrow directly from the Fed; historically, banks are loathe to borrow from the Fed’s discount window because it’s a clear sign of desperation, a signal that the bank couldn’t get financing from private lenders. But Bernanke probably realizes some institutions are getting desperate, and wants to send this send this comforting message that the Fed stands ready to provide liquidity.

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