Posted on 12/28/2011 10:32:58 AM PST by cowtowney
First it was Zero Hedge. Then Ron Paul joined in. Now it is the turn of a former Dallas Fed Vice President, Gerald ODriscoll, to outright accuse the Fed of bailing out Europe courtesy of "incomprehensible" currency swaps, and implicitly accusing Bernanke of lying that he would not bail out Europe even as he has done precisely that. And not only that: by cutting the USD swap spread from OIS+100 to OIS+50, the Fed has made sure it gets paid less than ever for extended Europe the courtesy of bailing it out all over again. Incidentally, O'Driscoll says, "America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here."
The Fed is using what is termed a "temporary U.S. dollar liquidity swap arrangement" with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.
(Excerpt) Read more at zerohedge.com ...
Bernanke said he was not going to bail out Europe.
That statement implies to me the money from the FED to the banks is not a grant (which does not have to be paid back) nor is it a loan (which has to be paid back) but is just a currency exchange. I don't see a bailout here.
What is wrong with that? -Tom
The US Fed is bearing the risk of the swap. If things go badly we might not be repaid or receive the interest. Even though the exchange rate for the swap is frozen..Europe may never have the dollars to pay them back.
Interesting- thanks for posting.
Bernanke said he was not going to bail out Europe”
That’s one of the seven warning signs that he will...
If freepers haven’t figure it by now, MF Global is the canary in the mine. Our global banking system is over leveraged, deeply in debt and bad assets. It is on the verge of imploding as it goes from one regional crisis after another. The Fed, Central Banks and Wall Street gamblers concluded that if the system implodes everyone will lose their savings and money. Therefore if desperate they will take customer money, people’s savings if necessary to prevent the collapse. Don’t like it, take it to court and spend money and years to get it back. By then the crisis would have moved on. If one is smart take your money out of Wall Street accounts and put it into hard assets. Otherwise one can wake up and find their savings frozen or taken.
I wish more Freepers understood this. Thanks
Amen, you said the obvious and yet many still have their eyes closed and ear shut. To your point one day there will be a shock and then they will ask why did they not know? Our representatives know much of this and are not warning anyone. This is just stupid, almost as stupid as those who have there eyes closed to the facts and numbers we are talking about. It is simply not possible anything good will come of it or that we can dig out of this without a reset.
If the European banks can't swap the dollars back for the Euros they gave us, we haven't lost anything - unless the Euro collapses, in which case we are holding useless monopoly money. - tom
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