Posted on 03/10/2008 6:15:48 PM PDT by shrinkermd
With worsening strains in credit markets threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -- perhaps buying mortgage-backed securities directly.
"As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest
...Since 1932, the Fed has had the authority to lend, against collateral, to individuals, partnerships or corporations other than banks in "unusual and exigent circumstances," subject to the vote of five members of the Board of Governors. (The board has seven seats, but two are currently vacant.) This power has never been used.
Mr. Feroli noted that Congress in 1966 gave the Fed temporary authority, made permanent in 1979, to purchase obligations of government-sponsored enterprises, such as Fannie Mae and Freddie Mac.
So far, the Fed hasn't purchased GSE obligations except in its short-term repurchase operations. When the federal budget was in surplus, the Fed considered outright purchases of GSE obligations, but judged against such a move as it would reinforce the perception of an implicit government guarantee.
Last week, the Fed said it would lend banks $100 billion starting this week in 28-day loans through its new Term Auction Facility, at which banks can post a wide variety of collateral, including mortgages, corporate loans and other items that have become harder to sell in the open market. And it said it would make money-market loans of as much as $100 billion to its network of 20 bond dealers for 28 days, double the usual maximum term, and structure them to encourage dealers to submit mortgage-backed securities guaranteed by Fannie and Freddie Mac.
Sen. Christopher Dodd (D., Conn.), chairman of the Senate Banking Committee, has suggested creating a new government corporation that could buy mortgage-backed securities
(Excerpt) Read more at online.wsj.com ...
Von Mises was candid and brief and extraordinarily, brillient to the point.
The over-the-counter credit deritive market, said by BIS, to be in excess of $600 trillion lies in the ether like nuclear radiation. The 'unregulated' contractural obligations are not reportable, not regulated, not controlled, endorsed by the previous FED chair and the current one, are beginning to reveal themselves as they, like ghosts, at demand for performance, raise themselves from the cess pool to declare they cannot perform, killing themselves, their parasite, and the markets. Those markets hold yours and my retirement portfolios, yours and my savings, and the future of our children. It is happening now, but it does so from behind a veil of ignorance for most, and those who are informed are the first to prepart for destructions emminence.
What I am trying to say is the public is largely ignorant of what is happening to them as they put their kids to sleep tonight. Thinking they are fed, warm, dry, with a roof over their heads, they do not have an inkling of what stalks them and will take them prey.
Yes, von Mises is so correct in almost all of his musings, most especially this assertion.
Eat, drink, make merry....the Central Bankers are in charge now.
I think that the dirty little secret is that they have lost control. Gold over $1000, gas headed to $4.00 a gallon, food riots, California real estate in a flat spin and about to auger in harder than an X- pilot, bonds down and up at the same time, folks asking for Euros in NEW YORK CITY, import control on US$ in South America. The good news. The EPA tightened up on emission controls.
Yes, and oil nearly touches $111. These actions by the FED, apart from predictibly being ineffective, tell us how near desperation the governors are. I watched today as Paulson, no doubt a genius in his area of speciality, said, in essence, 'the derivitives must be contolled, but the Presidents economic advisors could not figure out how that might be done. As he says the banks should volunteerily 'reign in these contracts', he cannot figure out how to do it.
That, in essence, leaves us to the grace and benevolence of desperate men in control of banking.
They have lost control, and these efforts to force banks to offer liquidity to buyers of money, in all of their forms, keep failing, and Bernanke keeps trying the same rememdy. The dollar is on its way to .52 USDX, and there seems nothing Bernanke is willing to do. It is said the markets have already factored in 75 basis points into the next cut on March 18. It will get very interesting on March 18 about 1:30 est.
The only rememdey now, it seems to me is what Paul Volker with support of President Reagan, in 1981 did.....raise interest rates immediately and substantially. It may be more than buisness and markets can handle, but now the decision to destroy old peoples savings, and young peoples retirement funds by monitizing the debt, but damn if I can see any other solution. It is axiomatic that Bernanke does not have the minerals to do it, so it is a moot recommendation.
I would preface this by sending a carrier group and some marines to take the Cayman Islands and seal it off. Catch some of the cockroaches where they fled to.
There is no way we could do a Volcker today. The underlying fundamentals of the US economy compared to his era are gone, and would not permit it. We will get bread and circuses right to the collapse, then we will get some form of govt by dictat.
Higher than today. Hedge funds are fleeing the dollar and currency in general. I think the new currency is commodities, gold, silver, copper, wheat, corn, oil. All the big money seems to be moving there for safety. It used to be that in times of uncertainty, there would be a flight to the safety of US treasuries. Now US treasuries are being shunned by the rest of the world in favor of more tangible things like gold and oil.
I agree it ain't gonna happen. Maybe it shouldn't even happen. But I want employers of the touts and shills around here to understand that being dishonest about what is going on when they get Fed bailouts is just going to cause a lot of us to demand it end right now today.
Furthermore, I don't know why anyone on the street should get more than his paycheck until the whole mess is unraveled, even if it takes 10 years. No bonuses, no parties, no executive retreats or planning conferences in the Swiss Alps. Nothing. They can downsize and downscale and pay back a lot of the largesse they "earned" from getting us into this mess in the first place.
The party is over for the rest of us. It needs to be over for them too.
It already did.
What already did?
The banks turning in their debt as "collateral" (soon to be monetized) must do so because they leveraged their actual capital 10 or 20 to 1 and are getting margin calls.
I don't think you understand what a margin call means. I'll add it to the list.
Denial of what?
A short while from now he'll still be saying there's nothing wrong with fractional reserve banking
There's nothing wrong with fractional reserve banking.
and that banks don't create money out of thin air
Of course the banking system creates money out of thin air.
I expect he'll either disappear, or slowly try to change the subject,
No, I'll still be here. Pointing out your errors.
Why didn't you respond to my questions? I'll ask again.
Let's start a new bank. We'll call it the "dollarbull bank of economic ignorance". Now have the Fed loan this new bank $200 billion in T Bills that DBEI will use as reserves. On day one, how much does this bank have as deposits? How much can they loan?
Walk it thru step by step, slow enough so even Andy and Travis can understand.
Try to answer this time.
Yes, if Merrill or Bear Stearns swapped some mortgage bonds for T-Bills, they can use a much higher % of the value to meet a margin call issued by say Citibank.
Uh, Bull, your point was that $200 billion in T-Bills added to reserves somehow creates $1 trillion in deposits.
Are you agreeing now finally?
That you still don't understand? Yes, I agree that you don't understand. Keep trying.
Let's start a new bank. We'll call it the "dollarbull bank of economic ignorance". Now have the Fed loan this new bank $200 billion in T Bills that DBEI will use as reserves. On day one, how much does this bank have as deposits? How much can they loan?
Walk it thru step by step, slow enough so even Andy and Travis can understand.
Try again?
Thanks for avoiding my questions.
sw
It's not my disconnect, it's your's.
Answer the questions about your new bank. It should be easy, just read your Fed link and get back to us.
It seems to me you're just being argumentative to cover the fact that you're trying to change your position w/o admitting it.
Which position do you think I'm trying to change?
Maybe you're sweating your ING and BAC positions
Why would I be sweating my ING position? It tripled since I bought it. And paid some nice dividends.
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