jepittman

AIG Becomes the Fed’s Vehicle to Buy Toxic Assets

Why does the Fed need to force 'insolvent commercial banks' to buy treasury securities to 'fund the stimulus' when the entire free market has been falling over each other to buy them? Furthermore, if treasuries needed a bid, the Fed could buy them themselves. They wouldn't need to coerce banks to do it.

'Crowding out', which refers to higher risk securities being neglected in the marketplace due to demand for lower risk securities (treasuries), has been occuring lately. However the Fed is relentlessly working to unfreeze these markets by bidding for a variety of assets such as commercial paper, mortgage backed bonds, and collateralized debt obligations (CDOs). Spreads between yields on these securities and comparable treasury bonds and notes have been narrowing lately, suggesting the Fed's actions are beginning to work.

These are precisely the kinds of actions a responsible Central Bank engages in to reduce the severity of economic downturns such as we have today.


On Dec 28 10:39 PM Anthony Alfidi wrote:

> If you like this, you'll love the next phase of the Fed's quant easing
> strategy. All the Fed has to do is make new loans to insolvent commercial
> banks with the stipulation that they buy Treasury bonds (funding
> the fiscal stimulus) and hold those bonds as loan collateral with
> the Fed. Presto! The economy is stimulated and we get the "crowding
> out" effect even with record low bond yields.

JPMorgan Chase: Poisoned by Bear's 5,000 Counterparties

The Fed has no reasonable alternative. It MUST defend the banking system above all else. Failed banks and a 1930s style deflation is not an option. Monetary policy is a very blunt instrument. They are in the business of making sure the credit markets and thus the entire economy, functions. They will defend the banking system above all else. It is NOT their job to hand down moral judgements on the 'correct' amount of debt, if any, an individual or organization should hold. The banks are going to be provided with however much money is necessary to unfreeze the credit markets and recapitalize their balance sheets. By short selling the banks at these levels one is fighting the Federal Reserve which has been known to be hazardous to one's wealth.


On Dec 16 08:37 PM curbs-in wrote:

> >Rakesh you had best cover your shorts. The economy is being drenched
> >in high octane gasoline.
>
> jepittman:
>
> Yep! And it's about to blow-up in the face of the Fed, Treasury,
> Congress and President 1/2.
>
> I really admire the way the Fed encorages personal finacial responsibility
> and saving...
>
> Just kidding...

JPMorgan Chase: Poisoned by Bear's 5,000 Counterparties

Rakesh you had best cover your shorts. The economy is being drenched in high octane gasoline.

JPMorgan Chase: Poisoned by Bear's 5,000 Counterparties

One compelling indicator that the financials are working on a bottom is the near universal agreement with this story. Now no one KNOWS where the bottom is - it will be known only in hindsight. But we can know that at bottoms - wherever that is - bearishness is nearly universal.

Incidently it would be nice if Rakesh would tell us when he covers his shorts in C,GS, and JPM. Don't hold your breath.

JPMorgan Chase: Poisoned by Bear's 5,000 Counterparties

With the Federal Reserve implying a nearly limitless money supply increase to defend the banking system I would suggest your short positions are rather tenuous. JPM and the other money center banks will get all the money they need to survive this crisis. The BS derivitives will be successfully unwound over time and will likely pose little threat to JPM.

Seriously, I wish you luck with your trades.

JPMorgan Chase: Poisoned by Bear's 5,000 Counterparties

'Exposure" does not necessarily mean 'toxic'. Your implication that every derivitive is worthless is absurd. JPM is regulated by several agencies and is constantly audited. Now this does not mean it is a good investment but it does mean the regulatory agencies and auditors probably know far more about JPM's obligations than you or me.


On Dec 14 07:23 AM 1 world currency wrote:

> According to Treasury Department statistics, JPM has a $90,000,000,000,000
> (trillion) gross notional exposure to derivatives. One analyst said
> assuming no unusual circumstances, their net exposure is only several
> hundred billion.
>
> We are experiences unusual circumstances, and this issue can not
> be ignored. We need immediate transparency regarding all this toxic
> paper.

Dear Fed: What Do You Have to Hide?

The Fed is in 'defend the system' mode. We have been very close to a systemic breakdown and the Fed is backstopping everything. Yes the collateral is lousy but 'mark to market' has undervalued a lot of good paper too. I say let them do what they feel they need to do. This is all highly inflationary but that is down the road and right now there are no acceptable alternatives.