Fed Gave Banks Eye-Popping Emergency Loans, Without Telling Congress

An anonymous reader writes with this excerpt: "The Fed didn't tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn't mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed's below-market rates, Bloomberg Markets magazine reports in its January issue."

Comments

Huh? [Re:Is that all?]

[Geoffrey.landis]

And before you bemoan corporate cronyism, that isn't the only problem. We give 100% of federal revenue to the old and the poor these days

Huh?

Do you mean social security? Let me remind you, that's not a hand-out; it's paid for. And it's not "100% of federal revenue".

In any case, if you're looking at the US budget, Defense, not "the old and the poor," is the largest share. Here's the discretionary portion of the budget: http://oranges-world.com/the-federal-budget.html

Re:Huh? [Re:Is that all?]

[Dcnjoe60]

Actually, that isn't the budget, just a pie chart representing broad expense categories.

Welcome to how the US government does budgets. It worries about how to spend the money, not about how to get it.

. For instance, if social security is bringing in 22% of the revenue and only expending 20%, then the 20% expense is not a problem. For the record, I do not know what social security brings in, but it supposedly "solvent" for another 20 years, so even if it is deficit spending, it isn't impacting what current tax dollars are being used for.

There is no concept of "solvency" for Social Security. The bonds it supposedly holds are an accounting fiction (and wouldn't come close to covering its future obligations as you admit). It has no assets to speak of. And it is running a deficit now.

Do you own your house outright, or do you have a mortgage. If you have a mortgage, then you, too, just like the SSA, are deficit spending, by using debt to offset current needs.

Don't get me wrong, there are serious problems with revenues and expenditures of the federal government, but actual deficit spending is not the problem, but a symptom. As an example, the government collects fuel taxes that it then distributes. When the economy tanked in 2009, the government spent more on highway funding than it brought in. Was that a problem, no, because it came from previous reserves, or unspent fuel taxes, from prior years. In that case, a deficit is exactly what you would expect -- accumulated reserves are used to cover current costs or deficit spending.

The problem is that the government does not have the political strength to accumulate excess reserves in good times, so instead, it uses funds from other restricted sources, such as the SSA and those organizations hold the debt of the government. Or they sell debt to other countries, like China. Personally, I would much rather the debt of the US to be owned by its citizens then the Chinese, but that's not my call.

The SSA is solvent if its current revenues plus reserves cover its current expenditures, even if those reserves are held by the rest of the government. At that point where it does not, then it isn't solvent. Currently, it is solvent. At some point in the future, without an increase in revenues or a decrease in expenditures, it will become insolvent. The fact that they are running a deficit has nothing to do with it.

Re:Capitalism

[meta-monkey]

Indeed. I am a capitalist (I own two small businesses, that while things are way tougher today, are still in the black). I do not understand why other capitalists are mocking the OWS crowd. What those people are mostly protesting is corporatism, and that corporatism is hurting capitalists like me.

For instance, if I need a loan to expand my business today, it's really, really hard to get, even with an 800+ credit score and good financials. Lending rates are way down. Banks aren't lending anybody money. Why? Prime is .25%. US Treasury bonds are 2%+ on a 5-year not. Banks are borrowing money from the Fed at .25%, and then lending it to back to the government at 2%+. They are literally conjuring profits out of thin air. And we can't get in on that action because we're not a huge bank. That ain't capitalism...that's corporatism, and it's hurting every small business in america.

Re:The FED was created BY Wall Street FOR Wall Str

[Colin Smith]

No, it was created by Wall Street banks in order to save their asses when they screwed up and pump the leverage up too high. That's what it does.

The people who created the Federal Reserve were Wall Street:
http://en.wikipedia.org/wiki/Jekyll_Island#Planning_of_the_Federal_Reserve_System

Paul Warburg - Kuhn, Loeb & Co. (Rothschild) - Lehman Brothers
Frank Vanderlip - National City Bank of New York - Citibank
Henry P. Davison - JP Morgan
Benjamin Strong - JP Morgan
Charles D. Norton - First National Bank of New York - Citibank

Bank runs and failures prevent banks from becoming Too Big To Fail, and taking down the entire world economy. Which they did just as soon as they were able to ramp up the leverage (backed by the FED) during the "roaring" 1920s (can you say Credit Bubble?) until the inevitable result ... The Great Depression, Hitler, World War II etc.

Banks are fundamentally unstable organisations, they operate through leverage so small negative changes cause catastrophic results, and central banks as lenders of last resort provide insurance, which allow banks to lend with higher leverage than they would if they had no insurance. The losses are obviously then socialised. This is highly desirable if you happen to be a Wall Street banker. Lucky they've got one then eh?

That is, central banks make the problem bigger. Tada, here we are again. Great Depression? Greater Depression? Greatest Depression? Are we going to see World War III as the results continue to roll round the world?