The fact is today, as tax payers, we are all long banks. Think of it as we all went long (NYSEARCA:KBE) with no hedge, and we are all in. Thursday afternoon I noticed a small glimmer of sunshine peeking through, a small sign that our investment may not go to zero.
I read with great interest this afternoon on MarketWatch:
The Federal Reserve Bank of New York received no bids for loans through its Term Security Lending Facility, it said Thursday. The central bank got no takers for $25 billion in Treasurys.
This is pretty amazing considering the diversity of people, counterparties and elected officals with pitchforks that are circling banks. Even some of the strongest names have taken direct investments, loans or participated in some sort of government assistance.
The TSLF program was started in March 2008 to help banks access liquidity and improve the functioning of financial markets. The program offered 28-day loans in exchange for appropriate collateral from the Fed's 16 primary dealers, the biggest bond traders, which include most of the biggest U.S. banks. Many of the last several operations have drawn demand for less than the Fed offered to loan.
My take mirrors the fixed income manager interviewed in the article. Financing needs are obviously being met elsewhere and this program may be “self-closing.” These are very good signs (albeit baby steps) toward a strenghtening financial system.
We need strong banks to fuel the economy, we all get it. I still have issues with being long an industry by participation as a tax payer.
Disclosure: Long banks, courtesy the US government, long select banks as a portfolio manager.