It has become clearly evident that the Fed works weekends.

Last night the Fed announced an emergency quarter point discount rate cut to 3.25%, and on top of that, offered to lend money to a longer list of firms than ever before.

The rare weekend move came as J.P. Morgan Chase (JPM: chart, web, Y!) sealed a deal to buy Bear Stearns (BSC: chart, web, Y!) for just $2 a share backed by up to $30 billion borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear.

I had a hunch that a buyout would be in the works, as it would be much more reassuring if one major finance player bought one on the brink of failure rather than just letting the Bear lose face and go extinct.

The Fed board also approved the creation of a special lending facility through the New York Fed that would be available to members of its primary dealers list, which includes both commercial banks and investment banks. Investment banks like Bear Stearns, have not previously been allowed to borrow directly from the Fed.

The Federal Reserve has announced that the Federal Reserve Bank of New York has been granted the authority to establish a Primary Dealer Credit Facility (PDCF). This facility is intended to improve the ability of primary dealers to provide financing to participants in securitization markets and promote the orderly functioning of financial markets more generally. -Source

In other words, please come borrow money from the New York Fed so we can keep the financial markets liquid.

The Federal Open Market Committee meets on Tuesday and the consensus on The Street is a Fed funds rate cut by as much as a full percentage point to 2%, and an even deeper discount rate cut is also in the cards.

If it hasn’t been evident that the Fed knows how serious the financial sector is in, it’s clearly evident now.

I chatted with Winston (who operates out of a local board of trade) about this emergency rate cut last night. He seemed to indicate that the very fact that the Fed cut rates just two days before a FOMC meeting signals something big is in the cards for the first couple days of the trading week. It also serves to unnerve many traders into thinking we’re in for some major bad news when Goldman Sachs (GS: chart, web, Y!) and others announce earnings this week. Otherwise, why wouldn’t the Fed just wait till the meeting to make the rate cuts?

It’s gonna be a fun one this week my friends!

Economics, Finance, Market Trends BSC, Finance, FOMC, GS, interest rates, JPM

As expected, Emigrant Direct has followed suit on lowering interest rates for its online American Dream Savings Account to 4.30%.  I can’t say that I didn’t see this coming, but the dropping rates are driving me to start maneuvering money back into the stock market.

I’m starting to rethink my goal of having $50,000 in the account to generate some secure passive income.  While it’s still a good goal to have, the money I have allocated for that account may work harder elsewhere, like in high yield ETF’s.

I’ve already got the mandatory 6 months worth of expenses stored up in savings, and am now strategizing on how to put my money to work.

What do you think? Is Emigrant Direct still a good place to store savings?

Banking, Saving Emigrant Direct, interest rates, savings

On Monday the Fed dropped interest rates by a full 0.75% out of the blue. Unprovoked, unannounced, and unexpected, both in scale and timing. Sure, The Street had predicted a rate cut, but no one was predicting three-quarter basis points, and few were predicting an unscheduled cut.

There is something strange about this move.

Big Ben Bernanke has been fairly slow to react to economic data, and has at most taken a half basis-point chunk out of rates at any one time. So why the big bite all of a sudden?

I suspect that there is more to this interest rate cut than pure economic data. If economic data were the driving factor behind a proposed rate cut, the decision to cut interest rates could have waited until the next Fed meeting. After all, it takes months for the effects of an interest rate cut to trickle down to the driving forces behind the economic health of this country: the common Joe’s like you and I.

I suspect there was something much more critical behind this move. I believe that some major financial player, one that helps stimulate the economy, was on the brink of failure. Nothing demands more immediate action than running out of money.

I don’t know who it was, but it was a financial company who is worth more to this economy alive than dead.

Only time will tell who it was.

Economics, Finance bernanke, Economics, Fed, interest rates