Mumbo Dumbo Jumbo

Trey Smith

Stocks rose 3 percent on Wednesday as major central banks jointly added liquidity to the world's financial system, easing worries about a global downturn.

The U.S. Federal Reserve and the European Central Bank as well as the central banks of Canada, Britain, Japan and Switzerland agreed to lower the cost of existing dollar swap lines -- reducing the cost of temporary dollar loans to banks -- by half a percentage point.
~ from Stocks Jump 3 Percent as Central Banks Add Liquidity by Caroline Valetkevitch ~

I don't have the faintest idea what the second paragraph means. So, being an enterprising bloke, I went to Wikipedia to try to ascertain what dollar swap lines are. This is what I found:

These swaps involve two transactions. When a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the Federal Reserve Bank of New York. At the same time, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the conclusion of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Federal Reserve.

When the foreign central bank lends the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars are transferred from the foreign central bank's account at the Federal Reserve to the account of the bank that the borrowing institution uses to clear its dollar transactions. The foreign central bank remains obligated to return the dollars to the Federal Reserve under the terms of the agreement, and the Federal Reserve is not a counterparty to the loan extended by the foreign central bank. The foreign central bank bears the credit risk associated with the loans it makes to institutions in its jurisdiction.

Huh? I still don't have a clue!

As a doofus layman, my guess is that this move electronically adds wealth into the pockets of people who already are filthy rich and doesn't do much of a damn thing for anybody else. It's like playing the role of a corrupt banker during a "friendly" game of Monopoly -- you add money to your stack when the other players excuse themselves to the bathroom or run to the kitchen for munchies.

If you understand this whole deal better than I do -- which shouldn't be too difficult -- please enlighten me.