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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."
Privatize the profits socialize the losses. Isn't capitalism great.
How is it that these people saw no jail time for this nonsense? I'm as jaded as the next person when it comes to our country, but this is obscene.
And the masses cried out, "09 F9 11 02 9D 74 E3 5B D8 41 56 C5 63 56 88 C0!"
The real issue here isn't that the Fed made money available, but the disparity of interest rates between that at which the money was available to select parties and that which the open market would bear: that let the banks borrow massive quantities at virtually no interest, only to lend it back out at much higher interest rates. Pure arbitrage between the "emergency" funds' near-zero interest rate on a restricted market and the open market's willingness to pay interest. It's not even clear that the banks taking the loans were unhealthy--they may have just recognized the profitability of free temporary money that could be loaned out for more than it cost (arbitrage). The Fed basically just shoveled profit to the banks. This isn't to say that the Fed didn't get all its loaned money back -- that's irrelevant. They knew full well that they were creating an artificial market for a select group of players and in direct opposition to the preexisting open market, and that they were creating a textbook case of arbitrage that could only profit the participants with access to the fed funds.
If someone doesn't go to jail for this, it'll be very hard not to listen to the anti-regulatory, anti-government fringe loonies. This is exactly what they've been squawking about for years. This is the kind of move that destroys the people's trust in the government's ability to regulate the markets: there's no way to see this except as blatant corruption and cronyism. That loss of trust, in the long run, is the most important fallout of this story. If this country is going to recover economically, there's going to have to be a sea change in ethics on both sides of the markets, both the money-making side and the regulatory side (and, yes, we still need both), and its going to have to be a credible change, not just a veneer, to restore confidence in the form of capitalism we claim we practice (and obviously no longer do).
It really is chump change on the scale of these bank bailouts. And the timing was "between presidents", so to speak, so it's no wonder the system was being gamed with particular intensity.
Almost all the government does these days is give money to politically favored groups. 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. I'm all for charity, but this is a bit much, especially what we give to the old who aren't the poor. Both parties give tax money to their favored groups with equal fervor!
There has to be some limit imposed on the government's ability to take from the politically disfavored and give to the politicallty favored, and if 100% of revenue isn't the limit (and with the bank bailouts + entitlements, it was closer to 200% in 08-09) how can the government survive?
Socialism: a lie told by totalitarians and believed by fools.
You want bigger numbers?
Look at the bond sales... Quantitative Easing...
1. Treasury sells them.
2. Someone buys them.
3. Someone sells them on to the FED during POMO.
4. Profit.
Look, all filled in. No questions.
Guess who someone is.
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It seems that the Fed is the only organization in America that would rather solve problems than score political points. From all accounds, they saved the economy from a liquidity crisis that would have shut down every business in America. I say, horray for the Fed!
http://www.geoffreylandis.com
WTF is that the Fed wanted money pumped into the system, to compensate for all of the (virtual) money that was disappearing. They were afraid of a deflationary cycle, where too little money was chasing too many goods, causing prices to fall, fewer goods to be made, more workers fired, and even less money.
But the Fed doesn't have branch offices, so they can't make loans to companies or individuals. Instead, they hired the major banks to do it. The gave the money to the banks, who loaned it out a higher rate. The higher rate compensates them for the risks of the losses they were taking: they still owed the money back to the Fed whether the loan was repaid or not. It also pays them for all of the infrastructure they have to maintain to make and service those loans: employees, computers, etc.
None of that is figured into that estimate of "profit", which was based on the difference between the rates, without taking their costs into account. And it amounts to getting about 1% of the transaction cost.
The fact that this was done without supervision by Congress is noteworthy, and needs to be investigated. Monetary policy needs to be coordinated, while the goal is to create some space between the Fed and the government to reduce the influence of politics, the government is still supposed to supervise the Fed.
But as fiscal policy, this is reasonably orthodox. The banks were paid to do what the banks do: give loans so that the economy can expand. Getting somebody else to do the same job would have cost more. The numbers are proportional to what you'd expect of trying to manage a country with a $14 trillion GDP when it's in a crisis.
And here you have the problem. As if this one time weren't bad enough, raiding the treasury will now become a thing that happens every time we turn over administrations.
Help stamp out iliturcy.
The Fed actually did no wrong, they did exactly what they were supposed to do, HOWEVER: the CEOs of the banks on the receiving end of the loans should absolutely be investigated for defrauding investors, because going out in public and telling the public that your balance sheet is solid and can weather the storm, while simultaneously they are in need of taking on multibillion loans from the Fed just to stay afloat is fraud, plain and simple. Too bad the SEC is in the same bed so nothing is likely to ever happen.
Today, as for a long, long time, the clown is allowed to point out the truth when others are not.
In fact this is exactly the OPPOSITE of the free market.
The emergency loans were uncapitalistic government interference that denied market forces the chance to punish these boys with failure like they deserved.
Especially since those same banks wouldn't have hesitated to foreclose on their own debtors.
Looks like it was more than that. "Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report. "No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," Sanders said."
Is the counterfeiter considered rich?
They are thieves. Don't stigmatize them for being rich, stigmatize them for being thieves. Many people become rich, some fabulously so, by legitimate means, and in so doing do a great service to the rest of humanity. Don't conflate them with these "people".
Just to put the actions of the FED into context.
It's purpose is to protect the banking sector, particularly a few Too Big To Fail banks. They did exactly what they were supposed to do.
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As to Social Security, it is a con not a deserved benefit. There's no investment of the funds that went in ("pay as you go"), something that a few generations of US voters were willing to ignore. Nor is there an obligation to pay out a particular level of benefit.
You are confusing two arguments.
I stated that Social Security is a benefit that is paid for. That is to say: I pay money to social security, and in return for this payment, social security pays me when I retire. Is that clear enough?
You state "There's no investment of the funds that went in." That assertion is irrelevant to my statement. If I were to pay some money to a private annuity, on the promise that they would pay me an annuity X years later, it makes no difference what they do with the money I pay them. What matters to me is that I have paid for a service (an annuity to be paid in X years). When I state "I paid for this service", a response from the annuity firm of "but we didn't invest your money" does not invalidate my statement "I paid for that."
You go on to state "Nor is there an obligation to pay out a particular level of benefit." This may be true-- congress reserves for itself the right to change the rules-- but it is still irrelevant to my statement. Yes, congress can, if they choose, renege on their obligations. That doesn't change the fact that social security is something that I paid for; it is merely a statement that congress can, if they chose to do so, decide not to give me a service even though I paid for it. True, not relevant. If it were a private annuity, basically you're saying that there's fine print in the contract saying that the elected board of directors of the annuity has the ability to change the payout schedule. Well, you may be right to say that I was not wise to put money into an annuity with a clause like this in the fine print. But, wise or not, while it may change whether I do get the service I paid for, it doesn't change the fact that I did pay for it.
You seem, basically, to be complaining about the way social security works. Your complaints may be true or false, but they don't address my point that social security is a benefit that is paid for.
http://www.geoffreylandis.com
Arguing statistics that were pulled out of his butt is silly. This is a poster with a mission that you're responding to, not one with referential, cited facts. Of course this is /., where they're unnecessary. Carry on.
---- Teach Peace. It's Cheaper Than War.
It's all subject to immense amounts of argumentativeness because the process is also NOT open. Every crackpot out there gets to deny reality, because reality is sooooo tough to discern. It's rife for abuse and politicking.
Like Sgt Friday used to say: Just the facts, ma'am.
---- Teach Peace. It's Cheaper Than War.
Capitalism isn't capitalism and will never be.
Capitalism inevitably results in a few monopolies destroying capitalism. It's not a self sustaining economic structure.
So we prop it up here and regulate it there to try and keep it under control and from over-merging and consolidating like the blog consuming our entire economy.
Then the libertarians claim that capitalism needs to be free of oversight so they scale back the watch guard every decade or so and the beast grows. Then it steps on something we all treasure and the public pushes back to shorten its leash. And so on and so forth.
If we had capitalism (which we never really have) then we would probably have a handful of mega-corporation that looks quite a bit like the government with a bunch of little niche organizations operating in their shadows.
Capitalism without corporations would just shift the corporatism to a plutocracy where a few wealthy individuals control large portions of the economy. So really corporatism is just a short sighted complaint about our current form of capitalism.
Functioning economies only really function when you use the useful parts and try and mitigate the problems through splicing in hybrid solutions. If raw capitalism results in massive income inequality and hardship for the majority then you splice in a little social security communism.
Capitalism was the economic foundation of a successful post-industrial economy. The age of the cheap widget. We were able in the 30s to temper most of its ills through infused socialism. Europe took it a step further in many respects.
But we're now leaving the hay day of capitalism and entering the information age. I don't think capitalism will function in this new era. I think within 100 years trying to fit capitalism to an information economy would be like trying to sell a spotify customer on the joys of FM radio.
Expect the composition of our economic philosophy to change dramatically. What will harm us probably more than anything will be a nostalgic ideological insistence to use solutions for problems we no longer face.
---Teach Peace. It's Cheaper Than War."
Love your sig.
Reminds me of what Pope Paul VI said: "If you want peace work for justice."
You know he'd shut that shit down. Clean up the Fed, slash military expenditures, get us out of the wars. I doubt anyone else would do it.
http://youtu.be/HawiHvxloms
"The ability to delude yourself may be an important survival tool" - Jane Wagner -
Speaking as an actual economist, you are incorrect in too many ways to discuss on slashdot.
Ahh, argument by assertion, that's a good one. You need to throw in a little more bluster if you want argument by intimidation, I fear. Argument from autority doesn't begin to work when you're anonymous (or, let's be honest, when you're an economist, since there'a always an equal and opposing economist on any topic).
That assumes that you think that revenues are where they should be. It is quite possible that the problem is not on the spending side of the equation, but the revenue side.
You seriously want to make that argument? Let's look at my deadbeat uncle, Sam.
You seriously want to argue that Sam's spending isn't the problem right here and now because is a just world he'd earn more? Because he plans to earn more? Because you'd like him to earn more? Really? Because right here, right now, he needs to live within his means, and if one glorious day he does earn more, then wonderful, then he can buy more stuff that you like.
Worse than that, would you loan this asshole money, if he were your brother-in-law? OK, maybe after. a 12-step program, but now?
Socialism: a lie told by totalitarians and believed by fools.
"Don't they realize that if it really was that simple, then something would have been done a long time ago?"
Change your perspective, just a little, then take another stab at that. The statement, as it stands, assumes that someone, somewhere actually wants to do something good about the situation. In reality, the budget isn't quite as complicated as we are led to believe. Maybe a couple of pie charts aren't enough, but the problem is, those people who are in charge don't WANT us to understand. A goodly percentage of the world's wealth is transferred between corporations, and between friends and friends of friends, and the common man isn't meant to understand any of it. Politicians go to great lengths to use language that only confuses the issues.
As Baloroth stated above: "Same sort of budget games that allow people (congress critters looking to defame their opponents, mainly) to call increases in a budget "cuts", whenever the increase is less than what was originally proposed (doesn't even have to be less than inflation)."
Note that in common dialogue today, ending the tax break that the extremely wealthy currently enjoy translates into "higher taxes" on the wealthy.
"Windows is like the faint smell of piss in a subway: it's there, and there's nothing you can do about it." - Charlie Br
During the Carter years, when the top tax rate was 90%, the top 1% of taxpayers paid about 20% of all income taxes.
Now, with those evil, reviled Bush tax cuts for the evil and reviled rich (who clearly belong in concentration camps after we sieze their ill-gotten gains), the top 1% of yaxpayer pay about 40% of all income taxes.
Thats right, we've doubled the share that the 1% pay with those evil, reviled Republican tax cuts. Doubled it. And the size of the pie grew a lot when the incentive to hide/defer gains became so much less. But, hey, feel free to go back if you think they pay to much.
None of which has anything to do with fixing today's problem. Any tax increase will have a speculative result, and if revenues do go up, then we can talk about cutting spending only 40% across the board, instead of 50% across the board. In the mean time, we'd better start getting serious about real cuts, because there isn't enough money in America to fulfil our promises, even if we took everything.
Socialism: a lie told by totalitarians and believed by fools.
And now the stupid fucks have show up comparing what percentage to income taxes is paid to what percentage of people pay them, two completely unrelated things.
Hey, asswipe. We don't tax people, you fucktard, we tax income. The reason the top 1% pay twice as much now is that they are making something like eight times the money, and taxes are lower.
You might also wonder why you appeared to be paying 100% of the property taxes on your house. That is because you are the owner of your house, and other people are not, and thus those others did not have to pay any taxes on it. Likewise, the top 1% are almost the only people making any fucking income above the poverty line, or even any money at all, so are, in fact, almost the only people paying income tax.
I know it's very strange and requires a basic concept of complicated ideas like 'Only people with things are required to pay taxes on those things. People do not have to pay taxes on imaginary things they don't have.', but maybe you can find someone to help you. Perhaps you could go to the library and explain you are one of the very stupid, and ask if they have programs to help you. Like a literacy program, but for your entire brain.
And there is more than enough if we'd put their rates back to where they were under Clinton, and stopped bailouts and war. As everyone knows.
Without the idiotic policies of constant war and constant tax cuts and constant bailouts, we'd have a slightly increasing debt right now, during the recession (Yes, even with the stimulus), and one that went away once the economy got better. (Which means we'd have been much better off going into the economic collapse.)
If corporations are people, aren't stockholders guilty of slavery?