Fed's License To Print Money

It's official: The Federal Reserve is a buyer. The business press leads coverage this morning with the surprising declaration by the Fed yesterday that it will buy as much as $300 billion in long-term U.S. Treasury securities and hundreds of billions more in mortgage-backed securities. The Wall Street Journal points out that with interest rates already close to zero, opening its wallet was one of the few options left to the Fed. "The central bank now is essentially printing money to raise the supply of credit and thus push down the longer-term rates paid by families and companies on mortgages and other key loans," the newspaper writes. The impact of the Fed decision could be felt immediately. The Financial Times writes that "the yield on 10-year US Treasuries plummeted 50 basis points to 2.50 per cent, while private borrowing rates fell by roughly half as much." The dollar sank, too, it adds. The WSJ points out that the surprise is something of an about-face for the Fed. Buying up long-term debt was a move the Bank of England took earlier this month, but the Fed was initially skeptical. Eventually, after much internal debate, "Fed officials decided they had to do more as the economy deteriorated," the newspaper writes.

The Fed's buying spree will cost just more than $1 trillion, the New York Times calculates. It was a promise that sent the markets soaring in afternoon trade. The Dow closed at its highest level in a month, and Treasury prices soared, too. Amid the jubilation, there were some who pondered the inflationary impact of such a move, but that was quickly shrugged off. "This big buyback is concrete and real," an equity trader told the NYT.  

Would returning half the $165 million in bonus payments be enough to calm nerves? That's the concession AIG's $1-a-year-CEO Edward Liddy presented to his congressional inquisitors yesterday. The NYT quotes him as saying, “Some have already volunteered to give back 100 percent.” The other chief executive on the hot seat, President Obama, declared that the bonus fiasco is a legislative opportunity. The newspaper writes, "Mr. Obama, at the White House, said his goal was to 'channel our anger in a constructive way' and called for legislative authority to take over and close troubled nonbank financial institutions like A.I.G." 

Meanwhile, is there another bonus time bomb ticking away at government-controlled lenders Fannie Mae and Freddie Mac? According to the WSJ, despite posting mammoth losses a few weeks ago, "Fannie Mae is due to pay retention bonuses of between $470,000 and $611,000 this year to some executives." Rival Freddie Mac "also plans to pay such bonuses but hasn't yet provided details," the newspaper writes, adding that perhaps we shouldn't worry because the bonuses are nowhere near as large as those AIG paid out. Staying on the bonus beat, a New York state judge ruled on Wednesday that Bank of America cannot conceal the names of the Merrill Lynch bonus recipients, saying their identity did not amount to a trade secret, the WSJ reports in a separate article. 

Here's one that Wall Street didn't foresee: Software-maker Oracle has turned a third-quarter profit by posting net income of $1.3 billion. That's down 1 percent from the same quarter last year, but earnings per share of 26 cents are 3 percent up from the same quarter a year ago. That beats the Street's downbeat forecast and means Oracle shareholders will be receiving that rarest of corporate gifts—a dividend, writes CNN Money. Oracle's good cheer comes as the tech press digests IBM's proposed acquisition of Sun Microsystems. The proposed deal would suggest a personal failure for Sun's CEO Jonathan Schwartz—known more as an innovator than a money-making machine  in Silicon Valley—and would be "an inglorious end to an industry leader that once boasted it put 'the dot in dot-com' and reached a market value of $205 billion during the Internet bubble," writes the WSJ. However the deal would reflect on Sun, it would give Big Blue a big advantage in the growing world of cloud computing, writes BusinessWeek, specifically, "providing technology to the companies that operate cloud data centers for large consumer-oriented Web services such as Facebook and Google's YouTube."

Talking of coming down from a cloud, Bernie Madoff's accountant has been charged with securities fraud and with aiding the investment-adviser fraud committed by Madoff, the NYT reports. David G. Friehling ran his business from a "tiny storefront office" in the New York City suburb of New City in Rockland County and had audited Madoff's business for more than a decade. Friehling isn't accused of knowing about the $65 billion Ponzi scheme but rather of conducting "sham audits that allowed Mr. Madoff to perpetuate the fraud," writes the WSJ. By falsely certifying that he audited financial statements for Bernard L. Madoff Investment Securities LLC, Friehling "helped foster the illusion that Mr. Madoff legitimately invested his clients' money," acting U.S. Attorney Lev Dassin told the paper. Friehling is the first person aside from Madoff to be charged in the scam. Want to bet he won't be the last?

And, finally, off-shore drilling opponents won something of a victory yesterday from an unlikely source—the drillers themselves. According to Forbes, demand for drilling space in the busiest sections of the Gulf of Mexico has been well off in 2009. The Minerals Management Service, which opened sealed submissions yesterday, said the number of drilling tracts that went at auction fell by nearly half year-on-year to just 348 tracts. The culprit is cheap oil. "Our budgets have all been cut significantly," an exploration official told Forbes.