Some Fascinating Facts About Fed Injections

Some staggering amounts of money being used to support the global financial system; truly breathtaking when you step back and think about it. Just imagine what would happen if we actually used regulation instead.... (I know, its a 4 letter word)

Combine the following facts, with the European Central Bank's Half a Trillion in mid December and you are starting to talk real money here. We are now approaching a Trillion Dollars when you combine the US and Europe. They don't call him Helicopter Ben for nothing. All to bail out bad decisions by bankers drunk on fees from selling shoddy instruments. Again, never preventative, always reactive - Cramerica - by the corporation, for the corporation.

• The Fed has now offered $400 billion in short-term loans to help rescue the mortgage market, including $200 billion announced Tuesday, the $100 billion from the term auction facility loans to banks, and $100 billion announced Friday in loans to primary dealers in the bond market.
• Counting the currency swaps with the foreign central banks, the Fed has now committed more than half of its combined securities and loan portfolio of $832 billion, Crandall noted. 'The Fed won't have run completely out of ammunition after these operations, but it is reaching deeper into its balance sheet than before."
• The Fed could also simply buy agency or non-agency mortgage-backed securities under its existing authorities, but the announcement made no mention of that option. (that's next! and where will they get the money?? Do you hear those printing presses working overtime?)

Comments

[bylo]

I agree 100%. You can't cure having too much debt by issuing more debt. I'm afraid some banks must fail. I only hope that what I make from shorting the financials will keep up with inflation.

[Tony Soprano]

Two analogies or stories reflecting our financial crisis.

First story:

"Here is an analogy ...your teenager has maxed out their credit cards and is to a point they can no longer make payments. You step in as a co-signer and get the limits on the cards doubled.

Is this the right decision? This is what the Fed did for the banks yesterday." from Mr NoFate
______________________...

Second story:

"The son does use a credit card but instead of spending it on himself he wants to lend out the money and become loan shark. His idea is to lend out as much money that he can. In the mean time people that he is lending out to all live on an island. The island depends on a dike system to keep the island from going underwater. The dikes take an enormous amount of power to run. The islanders are taxed a lot to keep the power going..

The loan business is slow starting and the son wants it to grow much faster. His rich daddy is still backing him up and thinks his son is remarkable. The son's new business plan offers loan owners interest in a new waterfront country club if they barrow more. They see it as a steal and it makes them feel rich so they barrow more. His new business plan is a success for many years. The new country club is well under construction. Most of the people on the island are happy and think they have it made. The son pockets a good deal of wealth but he always wants more and more.

As more time passes, the cost of the power to run the dikes starts to increase rapidly. Sadly some of the islanders become sick. The doctors on the island suspect the Avian virus. Some even die and others cannot work. Unemployment starts to rise dramatically and the power for the dikes continues to rise.

Not all of the islanders owe money to the son. Many are still wealthy and never liked what the son has done and they are very much concerned about the rising cost to power for the dikes. More time passes and construction cost for the country club increases as well. Construction on the project starts to slow down. Many on the island start to become angry.

Taxes receipts to pay for the power for the dikes starts to diminish. Some of the islanders want to raise taxes to pay for the power. The islanders that are sick are not paying taxes. A meeting is called. The meeting is a failure and the son goes into hiding. However, the islanders come up with another plan but still many on the island do not like the newer plan as well

The newer plan requires the islanders to barrow more money but from the mainland. The wealthy on the island do not like this plan because it will require them to pay more taxes in the future. However, some of the middle class people on the island become restless and crime increases.

The islanders are at a serious crossroad. Damned if they do and damned if they don’t. Many on the island say the island will sink completely underwater if new monies are not borrowed. Others do not agree and feel the island will be on okay without the additional debt."

I’m not going to finish this story. I will let your imagination do the rest.

But my point is we can let GM or Ford go under and we will still have cars built. However, we cannot take this chance with the banks. Banks are the corner stone, hence the island metaphor, of our capitalism. If the banks sink we all sink. We cannot afford to take the slightest chance that this will spread further and sink us all. At the same time it’s a shame that a lot of our mortgage companies, brokerages firms and money center banks let this happen.

[buyitcheaper]

If you want to see a very funny and informative cartoon look at the whole subprime mess informationarbitrage.c... it's a ppt. And it is a nice metaphor for your island. Even though I'd like to see some bank presidents sent to jail.

[hattryx]

i knew housing was on a downturn when they advertised 'isoldmyhouse.com' on television. took a while for the numbers to catch up, but there it was.

[Tony Tovar]

Yeah, I agree, they are going to have to take some action like that which we can see was done in 1933 with the Home Owners Loan Corporation. There is legislation now that is running through hands in congress to do such thing.

[pharma]

In 1933, the Home Owners Loan Corporation did not help ending the depression. It just extended and deepened it.

Integrity of banking system must be protected. But bailing out losers and speculators is not a good idea.

"The Spending Society" is over. It is time for savings and hard work. Printing additional money will kill the US economy.