Tag: Ben Bernanke

In “The Big Dither” Paul Krugman warns:

There’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.  Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

Welcome to Monty Python’s Flying Bank Bailout Circus.  Everything is under control.  Nudge, nudge.  Wink, wink . . .    

Say no more, say no more.      

 

One tenth of the $700 billion bailout to be footed by U.S. taxpayers is projected to go to the pay and bonuses of Wall Street bankers. The same captains of finance who sent the world into a financial meltdown are now going to be rewarded handsomely.

The Guardian has found that the Top Wall Street bankers are to receive $70 billion in pay deals.

Financial workers at Wall Street’s top banks are to receive pay deals worth more than $70bn (£40.4bn), a substantial proportion of which is expected to be paid in bonuses, for their work so far this year – despite plunging the global financial system into its worst crisis since the 1929 stock market crash…

Staff at six banks including Goldman Sachs and Citigroup will pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted widespread criticism. The government cash has been poured in on the condition that excessive executive pay will be curbed.

The Financial Times first reported in news that Wall Street banks are fighting for life early this morning that the U.S. Federal Reserve was making “it easier for financial institutions to access Fed liquidity by easing terms on its borrowing facilities and accepting a much wider range of assets as collateral.”

The Fed likely figured the shock of bank failure today was an excellent time to sneak in a regulatory change. The Fed “widened the set of assets eligible as collateral for loans of Treasuries to include all investment grade paper, and raised the size of these Treasury loans to $200bn.”

The Fed also suspended rules that prohibit banks from using deposits to fund their investment banking subsidiaries.

The NY Times reports that the Fed loosens standards on emergency loans. Not just loosen, but “dramatically loosen” their standards.

In an obscure but highly important announcement late Sunday evening, the Fed said it would let Wall Street firms post as collateral much riskier assets – including equities, junk bonds, subprime mortgage-backed securities and even whole mortgages – in exchange for emergency loans through the Primary Dealer Credit Facility.

The Fed created the emergency loan program in March, at the same time that it engineered the shotgun marriage of Bear Stearns by JPMorgan. In itself, the program marked a historic expansion of the Fed’s lending to cover investment banks rather than only commercial banks.