Fed Moves to Break Credit Crunch

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Stocks surged higher on Wall Street today after the Federal Reserve moved decisively to try and break the credit crunch that has gripped the U.S. financial markets. The Fed announced that it plans to lend up to $200 billion of Treasury securities in exchange for debt, including private mortgage-backed securities that have slumped in value as homeowners defaulted on their payments. The move is designed to improve liquidity and restore confidence in battered credit markets.

A Fed statement said that loans to dealers under the new initiative will be secured for 28 days instead of overnight, and can be obtained using pledges of federal agency debt and residential mortgage backed securities as collateral. The expanded lending facility “is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally,” the Fed said.

The Dow Jones average opened more than 270 points higher in early trading, with shares of battered money center banks and housing finance companies soaring. The NASDAQ index was nearly 40 points higher, and the S&P gained 24 points in early trading.

For more on the credit crunch and its impact on supply and demand in the data center market, check out our “Crunch Time” series:

  • Credit May Limit Data Center Supply: A look at the eroding conditions in the credit markets and commercial real estate, and what this means for data center projects that are in the planning stage.
  • The Incumbent Advantage: How the crunch affects the data center developers, the specialized companies that have already committed to spending hundreds of millions of dollars on new facilities.
  • Wall Street May Buy, Not Build: The financial industry’s appetite for premier data center space has been a boon to the industry. Will the financial sector, bruised by huge losses from subprime lending, continue to build new facilities?
  • Demand Holding Steady, For Now: Analysts say belt-tightening in corporate America will squeeze IT budgets hard. With IT budgets shrinking, can the booming demand for data centers continue?
  • Later today: Does video change everything? How might common assumptions about supply and demand for data center services be altered by the emergence of online video? Note: This was delayed slightly, but coming later today.

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About the Author

Rich Miller is the founder and editor at large of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.