Slashdot Mirror
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."
$13 billion? Meh. Drop in the ocean. When we're all short of trillions, what's a few billion between friends?
Privatize the profits socialize the losses. Isn't capitalism great.
Jon Stewart covered this topic quite well the other day. So essentially we (US Treasury) loaned the banks money at 0.01% and then they loaned us (US Treasury) the money back at a higher rate. WTF?
"We make our world significant by the courage of our questions and by the depth of our answers." Carl Sagan
Not quite true, the Federal Reserve has both private and public components. http://en.wikipedia.org/wiki/Federal_Reserve_System
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).
The Daily Show treatment of this was titled something along the lines of 'Why the fuck did Martha Stewart go to jail?'.
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.
Deleted
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.
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
http://www.geoffreylandis.com
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.
Deleted
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.
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 -
Here is an interesting post on Reddit from someone inside the hedge fund industry about how the game is really rigged. It's an insiders view of how a segment of the corrupt economic system runs.
http://www.reddit.com/r/occupywallstreet/comments/muqzv/wall_of_text_i_work_in_wall_street_and_work_in
Why is Snark Required?
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?
Deleted