Posted on 08/25/2007 5:04:49 AM PDT by Hydroshock
NEW YORK (Fortune) -- In a clear sign that the credit crunch is still affecting the nation's largest financial institutions, the Federal Reserve agreed this week to bend key banking regulations to help out Citigroup (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), according to documents posted Friday on the Fed's web site.
The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities.
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Conrad DeQuadros of Bear Stearns offers perspective on the Fed's interest rate decision and the reaction on Wall Street. Play video
This unusual move by the Fed shows that the largest Wall Street firms are continuing to have problems funding operations during the current market difficulties, according to banking industry skeptics. The Fed's move appears to support the view that even the biggest brokerages have been caught off guard by the credit crunch and don't have financing to deal with the resulting dislocation in the markets.
(Excerpt) Read more at money.cnn.com ...
You can hope to destroy the village (the U.S.) in order to save it, but it’s still psychotic.
Oh, you're racist too. How nice.
If something causes something else to be inflation, then it cannot be inflation by itself. Thus money supply surplus cannot be inflation, but is a root cause of inflation, according to futurecasts.com.
I’m onboard with that.
You have misread the page. It was an explanation of Adam Smith’s teachings, which are exceedingly clear on this point. That was the point of linking that page, not to enter into a discussion of the futurecasts.com beliefs.
Besides, your second paragraph is tortured. I never said that an inflated money supply causes something else to be inflation. I’ve never read that claim by anybody. Please explain your meaning.
Yes. I’m clearly a psychotic racist. Because as a psychotic racist, and I can see that Whitey’s fascination with higher ed has, in the span of two generations in big cities, resulted in millions of men who cannot be counted on to build and maintain anything beyond a ham sandwich. The Mexicans are doing the trades, putting sweat equity into the infrastructure, going home tired at night. Whitey might be around the action, but he’s likely an aging foreman. This is nothing but the inevitable progression of a civilization to its soft and decadent end.
I just reread the paragraph in question, and I have to admit, it is tortured. Let me try again.
We both agree that increasing the money supply too much results in inflation. You believe that the increase itself IS inflation, and I believe the increase causes inflation.
I fail to see how anyone could possibly prove that inflation exists until prices rise. Thus, I find your definition of inflation to be flawed, not only because it precludes other inflationary pressures, but because it also has no utility.
In terms of other inflationary pressures, productivity is certainly a major one. If we ever get illegal immigration under control, we will experience some inflation. Wages have been kept artificially low (jobs Americans won't do for $6/hr) and as they come up, cost of product and consumer wages will both rise. That will certainly bump up the index.
I think your underlying point is that there are other manifestations of inflation pressures besides price increases (I agree) and that measuring price rises alone is not only an imprecise way of measuring inflation, it is also a very time lagged, which results in the Fed chasing its tail.
I have read some very interesting articles discussing the difficulties of comparing prices over time. The houses, electronics, cars, etc. of the 1950's simply cannot be compared to those of today. Even commodities are hard to compare. Mining and farming productivity have increased so massively that commodities have often decreased in price over many periods of inflation.
No, you don’t get the point. I give up trying to explain.
“......that the real number of illegals is near 50 million.”
Yours is a most interesting post...because IMHO, the failure of the “Immigration Panic Bill” that the White House and Senate were trying to ramrod through in June had something to do with the dam finally breaking on all this pseudopaper...I suspect that if even only a small percentage of liar loans were paid (even if it took 20 Mexicans living in a 3bd/2ba)..it would justify the leverage demanded by Wall Street.
>>Like the S&L bailout the object is to cover the lenders not the borrowers. ANd there is a real danger you and I as taxpayers will pay for part of this. There already have been high placed voices calling for a government bailout.<<
|I would have put it this way.
Banks are charging each other high rates because they think rates are going up and their is a shortage of liquidity.
Normally a brokerage owned by a bank is limited in how much they can borrow from that bank - they have to borrow from other banks. The Fed is making an exception. That does not reach the level of a bailout, by the definition I use.
The screams for one are already starting.
>>The screams for one {a bailout} are already starting.<<
You’re right.
That’s why we need to be careful and not call the current Fed action a bailout. We need our energy to oppose a real bailout that will hit taxpayers with the bill and send the message that everyone should jump into the next bubble too because the government will always cover their losses.
I consider both to be bail outs, but you are right about making sure we oppose andy tax payer support one.
Sep FF futures, 95.055 Friday, up half a tick. Dec FF, 95.29, down 7.5 ticks. Dec Eurodollar, 95.03, down 10.5 ticks.
Given the FF rate of 5.25%, 94.75 is 'par', so the mkt is discounting just a 25 bp cut in Sep...and the fact that Dec FF and ED came down sharply all this past week means specifically that the mkt is **reducing** its discounting of another cut at the Oct meeting.
Clearly, one or another real-world event can occur that will change current mkt sentiment, but absent such an occurrence, I should wager heavily against more than a 25 bp cut in Sep/Oct.
In fact, I am making just that wager right now, and epect to profit rather tidily, either by 12 October (expiration of Oct Eurodollar options) or by the Dec expiration. The neat thing about this sort of trade is that one gets two bites at the apple, heh heh.
I know something that you don’t. And what I know about the current operations of one small and one large bank both tell me that the Fed has to inject more cash and cut the Fed Funds rate a good bit to avoid a rash of bank closures.
If the Fed doesn’t see what I see, then your bet may be a good one. But the Fed has OCC auditors in both banks in question this week...so it *should* know.
So I say a .50% (or larger) Fed rate cut(s) before September ends (scheduled announcement plus Emergency announcements).
If I’m right, then our economy will head for a soft landing.
If you’re right, then the Fed is blind to banking reality and we’re going to get spanked like 1929.
In times of economic calamity, I quite agree that a lot of urban whites are going to be in hell's own trouble. PC and feminisation aside for the moment (although these will certainly be contributing factors to lack of success should a calamity occur), an enormous number of white urbanites haven't developed anything remotely resembling economic survival skills.
The Fed will **first** have another go at cutting the discount rate, likely by another 50 bp.
Oh, they'll get around to cutting the FF rate -- I never said otherwise. However, short of some immediately-on-the-horizon ('immediately' being the operative word here) problem event, said cuts will NOT occur in Sep/Oct, beyond 25 bp.
I'm not saying this is either 'right' or 'wrong', I'm saying -- along with virtually every interest-rate trader in the world -- that this is the way that, and the timeframe in which, matters will play out this autumn.
Either approach is viable for the current liquidity crisis.
FF is an **overnight** rate. One does not bail out bad mortgage paper with revolving overnight loans, now does one? The discount rate, contrarily, applies to loans of indeterminate length, and so is a much more useful tool in this situation.
Also, I should expect to see a step-up in the Fed's open mkt operations. I think they're going to buy back a helluva lot of their own paper, which of course adds direct liquidity to the economy.
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