Yet another bailout for Wall Street banks

( – promoted by buhdydharma )

  Once again, the Federal Reserve is going to come to the rescue of Wall Street. Once again, it will be in the name of helping out “us”.

 The idea behind giving the banks cheap money was that the banks would lend it to consumers and businesses.  Unfortunately, that hasn’t happened: Since the start of the crisis, bank lending has fallen off a cliff.  The banks are, however, lending to the Federal government, which needs to fund record deficits by borrowing more than $1 trillion a year.  The combination of the Fed’s desire to stimulate lending via cheap money and the government’s desire to stimulate the economy by running a huge deficit has made it a great time to be a bank: Banks can borrow from the government at artificially cheap rates and then lend the money back to the Federal government at higher rates, pocketing the difference.

And now it’s going to get even better to be a bank.

  As part of being in the Federal Reserve system, banks are required to keep a certain amount of money in cash at the Federal Reserve. The banks have always viewed this as a “tax”, because the money didn’t earn any interest and thus got no return.

  When the crisis hit in 2008, the Federal Reserve started giving the banks a modest amount of interest (0.25%) on their holdings at the Fed. The banks, looking to bolster their reserves to cover their massive losses in the real estate market, flooded the Fed with cash. The Fed was busy using its cash to purchase worthless mortgage-backed securities from the Wall Street banks at face value.

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 Now the Fed wants to shrink the monetary supply. Normally the Fed would do this buy selling off its assets. However, unlike through most of the Fed’s history, its assets are illiquid. They are no longer flush with liquid Treasury bonds. Now they have hundreds of billions of illiquid mortgage-backed securities on their books that they can’t sell without a) taking a huge loss that they don’t want to admit, and b) forcing mortgage rates up, which would cause a second leg down in the housing market.

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 So how can the Fed shrink the monetary supply, and thus reduce inflationary pressure, without crashing the mortgage market and the banking sector with it?

 By doing another bailout!

 The Fed’s exit plan will call for increasing this interest rate, to encourage the banks to keep more money in excess reserves instead of lending it into to the economy and thus expanding the money supply.

  The idea here is that, by increasing the amount of money on account at the Fed, the Fed will reduce the amount of money that gets loaned out to businesses and consumers, thus forestalling inflation.



 Of course, in the process of increasing interest paid on reserves, the Fed will be paying banks even more not to lend.  In the process, it will be giving banks yet another way to take nearly free money from the taxpayer and give it back to the government at a higher rate–and then pocket the difference.

 To summarize: we bailed out the Wall Street banks so that they could get the credit markets working, and restart lending on Main Street.

 That failed.

Now we are going to bail out the banks yet again, but this time it is because we want to reward the banks for not lending to Main Street.

 This is insanity in its highest form.

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    • gjohnsit on February 8, 2010 at 9:43 pm
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  1. …. why don’t we all declare ourselves Banks so we can all get bail outs then, and then inCorporate ourselves so we can give unlimited funds to political candidates with said bail out money ?

    Oh, I forgot, we only enable the OTHER PARTY to keep on doing this. nevermind. /> littela

    • Edger on February 8, 2010 at 11:08 pm

  2. coming the the heels of his courageous 4th and goal attempt to punch through healthcare.  Impressive.

    • dkmich on February 9, 2010 at 1:21 am
  3. …Bernanke, Geithner, Summers, et al are working on it as we speak.

  4. what would have happened if htat asshole wasn’t re-appointed?

    I actually have MORE respect for cheney these days – he’s just a straight up honest to goodness thieving, lying, cheating, stealing scumbag.

    what is the excuse of the fucking pieces of shit who are supposed to be on our side?

    rmm.  

  5. One is Recovering and One Isn’t. This article in Forbes (Forbes?!) discusses how one sector–the Wall St. sector–is the one that is “recovering”–the other sector–the one that the rest of us live in….well, not so much:

    The data are also confusing because they tell two different stories–or as Nouriel Roubini has described it, a tale of two different economies. Our primary goal here is to present the data in a way that best illustrates what is going on in the economy. This is important because it makes clear that this economic downturn is not your garden-variety recession. It is indeed the “Great Recession,” and it is far from over…

    There are several graphs and interpretations of those graphs in the article, worth a look, IMHO.  Specifically about the “main st.” portion of the economy:

    The data confirm what we see and hear around us if we are willing to look and listen. There is this “other” economy with high unemployment and a very low and still-declining employment-to-population ratioand it appears much worse than earlier jobless recoveries

    The article concludes with what is obvious to everyone, except for Brainless Ben & Co, and our politicians:

    Part of the reason that there is a groundswell of populist anger at the economic solutions that suit those “too big to fail” banks is that too many people and businesses who are infinitesimally tiny by comparison are on the verge of failure. Many who are underemployed and struggling to cope are subsidizing the grander schemes of economic recovery. Until policy makers reassure taxpayers that they are reading all the data–not just the happy stuff–the anger will grow. For many, many Americans there are no jobs and few prospects. For them the Great Recession is not a cute aphorism but a major cataclysm.

    Apparently for our politicos, the whines of the wall streeters continue to drown out the anguish and anger coming from the people that elected them?  

     

  6. The Fed is siphoning off the inflationary excess in the money supply by giving that extra cash to the banks.

    Meanwhile, the Fed is creating even greater inflationary pressure by increasing its purchasing of overvalued mortgage backed securities?

    Here’s a idea: why not simply stop buying these securities in the first place?

  7. inflationary pressure from consumers??? Many people I know are making less and working more. Which translates to actual dollars in the hands of consumers overall is less.  

    That theory would make sense if there was a shortage of goods and an excess supply of money. But demand is down. About the only thing people seem to be purchasing are fucking HD TV’s– and there is no end to the number of brands (at least  360) or the number of retailers (now Wal-Mart) jumping on that band wagon.

    So what the fuxk is really causing inflationary pressures??

    Could it be gov’t overspending on foreign wars?? Could it be the high demaand on conventional fossil fuel energies? No say it ain’t so.

  8. stimulate the economy i.e. military spending on foreign

    wars and associated investments. Everybody’s fine with

    those expenditures; no filibusters for that. Authentic capital investment like WWII. I mean who’s that Senator that just lifted his private filibuster on judicial appointments cause his state’s biggest employer wasn’t getting properly funded?

  9. remember that, they all have names and addresses.

    • ATinNM on February 9, 2010 at 8:54 pm

    the re-appointment of Bernanke shouldn’t have happened.  Now that the SOB has been re-appointed we can expect the exact same policies that got us into this mess will be continued for another four years.

    And guess who pushed for him to be confirmed?

  10. Damn these entitlement programs!

    Like feeding a bunch of stray dogs – these banksters are.

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