Check out this very major piece of banking news that is currently flying under the radar, for the most part:
Fed Bends Rules to Help Two Big Banks
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.
Summary: In contravention of the current rules, the Fed is letting two ginormous banks lend a total of up to $50 billion to their brokerage subsidiaries.
For some analysis on what this might mean, see this thread:
Ticker Forum – Oh oh – Banks in MAJOR trouble
Or from the left, if you prefer:
Democratic Underground – Fed Bends Rules
Serious talk of major panic and financial disruptions… Bank runs and government seizures even… Or at the least, dozens of billions of dollars in handouts to some of the ultra-rich investors who might otherwise become just a little less rich over the next few months.
Personally, I don’t know enough about banking and finance to say whether this is basically a nonevent economically, or the beginning of the next depression.
But one thing this tells us for sure: The Fed is absolutely, 100% in the pockets of the richest folks in the world — all at the expense of the taxpayers. Maybe that’s not huge news, exactly, but at this particular juncture in our economy, it is quite disturbing.
Probably worth contacting your congressperson about, at the very least.