Seeking Alpha

Living4Dividends'  Instablog

Living4Dividends
Send Message
Living4Dividends is an individual investor.
  • Fed's Massive Secret Wall Street Bailout Still Going Strong 0 comments
    Oct 30, 2009 10:50 AM
    Fed's Massive Secret Wall Street Bailout Still Going Strong Posted Oct 30, 2009 08:53am EDT by Henry Blodget inInvesting, Banking
    Related: ^dji, ^gspc, dia, spy, qqqq, xlf

    Remember last fall, when our government explained that the reason we needed to give $800 billion to Wall Street was so the banks could lend it back to us and shock the economy back to life again?

    That was a happy story!

    And we fell for it.

    What happened, of course, was that the banks took the money, stopped lending, and used it to pay themselves and their shareholders through the nose.

    Twelve months later, the banks still aren't lending, and we're still bailing them out hand over fist.

    By lending the banks money at zero interest rates, the FT's Martin Wolf says, the Fed is helping the banks recapitalize themselves.  The banks aren't lending because they're still trying to recover from all the lousy loans they made three years ago (and because there aren't all that many folks to lend to).  So there's nothing else to do with the money other than hoard it, buy safe Treasuries, and pay huge bonuses.

    It's annoying to watch banks that would have collapsed a year ago now minting money at taxpayer expense.  But that's the way monetary stimulus always works.

    Wolf, however, believes the public's outrage over the bailout and bonuses will drive Congress to pass some kind of financial reform.  And, in an ideal world, he'd also like to see a windfall tax levied against bank bonus pools, which he says serves "no economic purpose."

    The important questions for the economy and market now, says Wolf,  are whether the Fed will remove the stimulus in time to stave off inflation, and it does, whether the removal will hobble the economy.


Back To Living4Dividends' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

  • GBP/USD 1.6473
    Dec 6, 2009
  • EUR/USD 1.4872 + 0.0015
    Dec 6, 2009
  • Dow 10,388.90 +22.75 +0.22%
    Dec 6, 2009
More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.