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 ...
GS was drinking plenty of CDO koolaid, but in 2007 they went short on their own offerings. They were touting their rot long to the morons, while privately taking the opposite side.
Of course, GS is the ultimate nest of insider trading. For example, how better placed can you be, than to have your last CEO as US Sec Treasury?
The Fed creates problems by raising rates too high and then lowering them too low. They need to stop managing the economy with interest rates and incorrectly blaming the economy for inflation.
You’ll enjoy reading this:
http://www.swans.com/library/art14/mdolin31.html
A Quick Look At The Credit Crisis
by Michael Doliner
“(Swans - March 10, 2008) By now most people know that the “subprime” crisis is no such thing. What has happened is the final result of the long decay of the rate of profit (1) in the American economy. As productive activity no longer paid, investors turned to interest on credit to provide sufficient rates of return....”
Nice clear must-read. Thanks for a spectacular article. Really cuts to the chase...
“These liabilities seem to be as large as the entire American banking system.”
“The American economy now depends upon all the players going along with good news they all know is bogus.”
“Since everyone’s exposure is hidden nobody knows who is holding these worthless securities and is thus essentially broke, so nobody wants to lend any money to anybody.”
“Credit card defaults and car loan defaults are rising almost as fast as mortgage defaults. To repay or not to repay is now seen as a purely business, rather than a moral, decision. This pulls out the supports from all the mathematical models upon which the system is based.”
“The really fun news is that this is only the tip of the iceberg.”
“Nobody knows which banks are already bankrupt, and now even the little guy is no longer finding his obligation to pay all that much of an obligation. In the end the whole credit system depends upon the social convention that debts ought to be repaid, and this social convention seems to be dissolving. When people begin walking away, lower interest rates are not going to help.”
Yes, it’s one of the clearest and most concise articles I’ve run across describing what is going on in the credit markets.
It reminds me of what termites can do to wooden framework. From a distance it all still looks just fine, until you stress it.
Page 73
The discovery by financial capitalists that they made money out of issuing and selling securities rather than out of production, distribution and consumption of goods accordingly led them to the point where they discovered that the exploiting of an operating company by excessive issuance of securities or the issuance of bonds rather than equity securities not only was profitable to them but made it possible for them to increase their profits by bankruptcy of the firm, providing fees and commission of reorganization as well as the opportunity to issue new securities.
“The Federal Reserve, along with other central banks around the globe, unveiled plans to lend an additional $200 billion as part of its lending program to ‘promote liquidity’ in financial markets.”
http://money.cnn.com/2008/03/11/markets/stockswatch_ny/index.htm?postversion=2008031109
OK, now I know I am surrounded by utter morons.
Assets equal liabilities, that is an accounting identity. Of course "these liabilities" are the size of the entire banking system, banking systems are giant piles of liabilities, by definition. Money is the liability of a bank.
At the Waco Economic Forum, where the dividend tax cut was recommended, W refused to meet with the technology companies in attendance, so he sent Dick Cheney instead. Cheney refused to speak to them but offered to listen. W's willful neglect of technology was so bad that two well known Republican technology CEO's John Chambers and Meg Whitman turned to the Democrats for help.
So if you're going to call me insane, you better back it up. Otherwise, I'm going to continue to smack you down and drag you across the floor with the facts, and if you still continue I'm going to reach through my monitor and choke the sh*t out of you ;-)
[Money is the liability of a bank.]"Thus, clearly, money and goods are not the same thing but are, on the contrary, exactly opposite things. Most confusion in economic thinking arises from failure to recognize this fact. Goods are wealth which you have, while money is a claim on wealth which you do not have. Thus goods are an asset; money is a debt. If goods are wealth; money is non-wealth, or negative wealth, or even anti-wealth."Fortunately, Congressman Ron Paul has introduced legislation to restore financial stability to America's economy by abolishing the Federal Reserve.
Click here to contact your congressional representative and ask him/her to co-sponsor H.R. 2755.
How would that improve things exactly?
[How would that improve things exactly?]To begin with, by taking monetary control back from The Fed(tm), a private corporation, and restoring monetary responsibility to the elected representatives of the citizens of the United States, as per Article 1, Section 8, Clause 5 of the U.S. Constitution.Congress has been freeloading long enough. It's time to force them back to work for their lawfull employer - and that employer is not The Creature From Jeckyll Island.
Because Ted and Hillary would do a better job? LOL!
The goal is to allow BIG investment firms essentially unlimited short-term loans secured by whatever toxic debt they have on their books.
CNBC reporter Diana Olick quoted Greg McBride,Bankrate.com:
It will not be measured today or tomorrow or next week. The success is going to be measured over many months. Right now there’s not an active market for a lot of securities; the root is in mortgages. What the Fed is doing is accepting a broader range of mortgage-backed securities as collateral in an effort to pump liquidity in the markets in the hopes that that helps ease the strains we’ve been experiencing for the past seven months.
It doesn’t really affect refis or loan modifications. It’s all about the spread between mortgage rates and treasury yields. It may provide a short-term psychological boost. . . .
All this 'Helicopter Ben' Rescue the Markets Hype was aimed at a short term psychological boost.
Nice job Ben ! We knew we could all count on you . . . < / snicker>
No they didn't.
What the Fed is doing is accepting a broader range of mortgage-backed securities as collateral in an effort to pump liquidity in the markets in the hopes that that helps ease the strains we’ve been experiencing for the past seven months.
OMG! That's terrible! Why is it terrible?
Why is it terrible? Because it might work!
[Because Ted and Hillary would do a better job? LOL!]
But who do Ted and Hillary work for, really?
"Though the plutocracy were unable to control the Democratic Party as they controlled the Republican Party, they did not cease their efforts to control both and in 1904 and 1924, Morgan was able to sit back with a feeling of satisfaction to watch presidential elections in which the candidates of both parties were in his sphere of influence."
Tragedy and Hope: A History of the World in Our Time', by Carroll Quigley; Page 74
Time to give The Party(tm) a cashectomy: Scissors cuts Credit Card.
All your party are belong to us.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.
