From the WSJ's Real Time Economics blog:
Economists and others weigh in on the the Fed’s expansion of its securities lending program.
[This is] the smartest thing I’ve seen the Fed do in a long time… [The move] is based on the Fed’s existing securities lending facility with some key changes. First, the existing program is overnight lending only. Second, the existing program was a Treasury for Treasury switch only. The new facility is up to a 28-day term and accepts agency debt, agency residential [mortgage backed securities], AND AAA/Aaa-rated private label residential MBS. The last security class is currently not accepted via the RP facility announced Friday. This does not represent an increase in the Fed’s balance sheet, rather they are simply lending a portion of their existing Treasury portfolio ($709 billion) and replacing it temporarily with other securities. Given the size of the Fed’s balance sheet there likely is some room to further expand this program if necessary… A very powerful tool. –Drew Matus, Lehman Brothers
By suddenly and dramatically increasing the supply of Treasuries the Fed has driven yields higher and flattened the curve. The odds on a [three-quarter-point rate cut] next week have dropped sharply too; the Fed will be happy. This will not turn the economy around or fix all the problems in the markets but it should reduce the liquidity issue, at least for now. –Ian Shepherdson, High Frequency EconomicsMore