By: pelicanbrief114 21 Feb 2008, 12:18 PM EST Msg. 669458 of 669459 Jump to msg. # It's Thursday and
The desk (Fed) has entered Temporary Repo's in the amount of:
$ 25 BN in today's action.
It appears that the late '07 "Thursday" trend has been re-established. Furthermore, it's become quite evident that such "Thursay" temporary infushions are an attempt to stabilize/re-liquify the system heading into the weekends.
By: pelicanbrief114 22 Feb 2008, 11:05 AM EST Msg. 669889 of 669913 (This msg. is a reply to 669826 by sparkysantos.) Jump to msg. # Sparky
By: sparkysantos 22 Feb 2008, 03:47 AM EST
The bottom line immediate problem right now is simple; the "system" doesn't have the cash it needs to run properly. And this includes everything from the billions in cash needed to stuff the nation's ATMs for the weekend to the cash needed in checking account just to cover the many, many billions in checks that will clear this weekend.
Please allow me to elaborate on this profound/precise observation with some figures.
During the past several months, it's evident via the "Thursday" trend that the desk (Fed) has certainly been extremely busy (concerned?) with the potential lack of liquidity throughout the system, evidenced by their very actions with respect to Temporary Repo Reserve actions. Let's take a look at the figures, shall we:
The priming of the "PUMP" on Thurdays persists.
The numbers speak for themselves:
2/21/08<<<<<<<<<<<<< $ 25 BN
2/14/08<<<<<<<<<<<<< $ 36.25 BN
2/7/08<<<<<<<<<<<<<< $ 11.75 BN
1/31/08<<<<<<<<<<<<< $ 9.5 BN
1/24/08<<<<<<<<<<<<< $ 19.25 BN
1/17/08<<<<<<<<<<<<< $ 17 BN
1/10/08<<<<<<<<<<<<< $ 24 BN
1/3/08<<<<<<<<<<<<<< $ 10.5 BN
12/27/07<<<<<<<<<<<< $ 16 BN
12/20/07<<<<<<<<<<<< $ 20 BN
12/13/07<<<<<<<<<<<< $ 20.75 BN
12/6/07<<<<<<<<<<<<< $ 12.25 BN
11/29/07<<<<<<<<<<<< $ 12.75 BN
11/22/07<<<<<<<<<<<< THKS GIVING HOLIDAY
11/15/07<<<<<<<<<<<< $ 47.25 BN
11/8/07<<<<<<<<<<<<< $ 32.75 BN
11/1/07<<<<<<<<<<<<< $ 41 BN
10/25/07<<<<<<<<<<<< $ 31 BN
10/18/07<<<<<<<<<<<< $ 28.25 BN
10/11/07<<<<<<<<<<<< $ 35.5 BN
10/4/07<<<<<<<<<<<<< $ 28 BN
9/27/07<<<<<<<<<<<<< $ 33 BN
9/20/07<<<<<<<<<<<<< $ 29 BN
9/13/07<<<<<<<<<<<<< $ 21 BN
9/6/07<<<<<<<<<<<<<< $ 31.25 BN
What one can take away from the above is the following: These actions represent some of the Largest one-day actions from the desk in History. Something amiss? I think we know the answer.
These figures clearly illustrate/support/echo sentiments that, yes indeed, there appears to be much concern from the Cartel in providing sufficient liquidity within the system, particularly/specifically, the weekends noted.
By: pelicanbrief114 22 Feb 2008, 12:33 PM EST Msg. 669973 of 669995 (This msg. is a reply to 669690 by lowriderbill.) Jump to msg. # lowrider
By: lowriderbill 21 Feb 2008, 06:34 PM EST
I believe the following will happen moving forward:
1) That funds collected from a forced buy-in were retained in trust. 2) A conversion to a new company will be offered to bonafides. 3) That the funds in trust will be used to offer a buyback. 4) That any remaining shares after a buyback will be converted. 5) That the new company is actually a holding company where any assets and claims that were supposedly stolen or misappropriated will be rolled into.
By: pelicanbrief114 22 Feb 2008, 07:50 PM EST Msg. 670188 of 670332 Jump to msg. # Illiquidity; Seizure; Insolovency
Tremors/After Shocks/ Brush Fires (Bonfires)continue to rage.
The Bonfire of Capital By MIKE WHITNEY
The credit storm which began in July when two Bear Stearns hedge funds were forced to liquidate, has continued to intensify. Last week the noose tightened around auction-rate securities, a little-known part of the market that requires short-term funding to set rates for long-term municipal bonds. The $330 billion ARS market has dried up overnight pushing up rates as high as 20 per cent on some bonds -- a new benchmark for short term debt. Auction-rate securities are now headed for extinction just like the other previously-vital parts of the structured finance paradigm.
The $2 trillion market for collateralized debt obligations (CDOs), the multi-trillion dollar mortgage-backed securities market (MBSs) and the $1.3 asset-backed commercial paper (ABCP) market have all shut down draining a small ocean of capital from the financial system and pushing many of the banks and hedge funds closer to default.
The price of insuring corporate bonds has skyrocketed in the last few weeks, making it more difficult for businesses to get the funding they need to expand or continue present operations. Much of this has to do with the growing uncertainty about the reliability of credit default swaps, a $45 trillion dollar market which remains virtually unregulated. Credit-default swaps are a type of financial instrument that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements. When the price of CDSs increases, it means that there is greater doubt about the quality of the bond. Prices are presently soaring because the entire structured finance market -- and everything connected to it-is under withering attack from the meltdown in subprime mortgages. As foreclosures continue to rise, the subprime loans that were transformed into securities will continue to unwind, destroying trillions of dollars of virtual-capital in the secondary market.
It all sounds more complicated than it really is. Imagine a 200 ft. conveyor belt with two burly workers and a mountain-sized pile of money on one end, and a towering bonfire on the other. Every time a home goes into foreclosure; the two workers stack the money that was lost on the transaction, plus all of the cash that was leveraged on the home via "securitization" and derivatives, onto the conveyor-belt where it is fed into the fire. That is precisely what is happening right now and the amount of capital that is being consumed by the flames far exceeds the Fed's paltry increases to the money supply or Bush's projected $168 billion "surplus package". Capital is being sucked out of the system faster than it can be replaced which is apparent by the sudden cramping in the financial system and a more generalized slowdown in consumer spending.
According to a recent Bloomberg article:
"A year ago $20 million would have gotten Luminent Mortgage Capital Inc. access to $640 million in loans to buy top-rated mortgage-backed securities. Now that much cash gets the firm no more than $80 million. ... (Only) 6 lenders are offering 5 times leverage, while a year ago, 20 banks extended 33 times."
The banks are not providing anywhere near as much money for leveraged investments as they did just last year. And, when credit shrinks on a national scale -- as it is -- so does the economy. It' a simple formula; less money means less economic activity, less growth, fewer jobs, tighter budgets and more pain. Bloomberg continues:
"Wall Street firms, reeling from $146 billion in losses on their debt holdings, are fueling a credit crisis by clamping down on lending to investors and hedge funds that use borrowed money to buy securities. By pulling back, (the banks) are contributing to reduced demand and lower prices throughout the fixed-income world."
The banks are in no position to be generous because they're already saddled with $400 billion in MBSs and CDOs---as well as another $170 billion in private equity deals -- for which there is currently no market. They've had to dramatically cut back on their lending because they either don't have the resources or are facing bankruptcy in the near future.
An article which appeared on the front page of the Financial Times last week, illustrates how hard-pressed the banks really are:
"US banks have been quietly borrowing massive amounts of money from the Federal Reserve...$50 billion in one month."
The Fed's new Term Auction Facility "allows the banks to borrow money against all sort of dodgy collateral," says Christopher Wood, analyst at CLSA. "The banks are increasingly giving the Fed the garbage collateral nobody else wants to take ... [this] suggests a perilous condition for America's banking system."
The move has sparked unease among some analysts about the stress developing in opaque corners of the US banking system and the banks' growing reliance on indirect forms of government support." ("US Banks borrow $50 billion via New Fed Facility", Financial Times) (The story appeared nowhere in the US media)
At the same time the banks are getting backdoor injections of liquidity from the Fed. Banking giant Citigroup has been trying to off-load some of its branches so it can cover its structured investment losses. It all looks rather desperate, but scouring the planet for capital to shore up flagging balance sheets is turning out to be a full-time job for many of America's largest investment banks. It is the only way they can stay one step ahead of the hangman.
In the last few days, gold has spiked to $950, a new high, while oil futures passed the $100 per barrel mark. The battered greenback has already taken a beating, and yet, Fed chairman Bernanke is signaling that there are more rate cuts to come. The prospect of a global run on the dollar has never been greater. Still, Bernanke will do whatever he can to resuscitate the faltering banking system, even if he destroys the currency in the process. Unfortunately, interest rates alone won't cut it. The banks need capital; and fast. Meanwhile, the waning dollar has sent food and energy prices soaring which is leaving consumers without the discretionary income they need for anything beyond the basic necessities. As a result, retail sales are down and employers are forced to lay off workers to reduce their spending. This is all part of the self-reinforcing negative-feedback loop that begins with falling home prices and then rumbles through the broader economy. There is no chance that the economy will rebound until housing prices stabilize and the rate of foreclosures returns to normal. But that could be a long way off. With housing inventory at historic highs and mortgage applications at new lows, the economy could keep somersaulting down the stairwell for a good two years or more. Only then, will we hit rock-bottom.
The country is now headed into a deep and protracted recession. Low interest credit and financial innovation have paralyzed the credit markets while inflating a monstrous equity bubble that is wreaking havoc with the world's financial system. The new market architecture, "structured finance", has collapsed under the stress of falling asset-values and rising defaults. Many of the banks are technically insolvent already, drowning in their own red ink. Public confidence in the nations' financial institutions has never been lower. Monetary policy and deregulation have failed. The system is self-destructing.
Now that the credit crunch has rendered the markets dysfunctional, spokesmen for the investor class are speaking out and confirming what many have suspected from the very beginning; that the present troubles originated at the Federal Reserve and, ultimately, that's where the responsibility lies. In an article in the Wall Street Journal this week, Harvard economics professor and former Council of Economic Advisers under President Reagan, Martin Feldstein, made this candid admission:
"There is plenty of blame to go around for the current situation. The Federal Reserve bears much of the responsibility, because of its failure to provide the appropriate supervisory oversight for the major money center banks. The Fed's banking examiners have complete access to all of the financial transactions of the banks that they supervise, and should have the technical expertise to evaluate the risks that those banks are taking. Because these banks provide credit to the nonbank financial institutions, the Fed can also indirectly examine what those other institutions are doing.
The Fed's bank examinations are supposed to assess the adequacy of each bank's capital and the quality of its assets. The Fed declared that the banks had adequate capital because it gave far too little weight to their massive off balance-sheet positions -- the structured investment vehicles (SIVs), conduits and credit line obligations---that the banks have now been forced to bring onto their balance sheets. Examiners also overstated the quality of the banks' assets, failing to allow for the potential bursting of the house price bubble. The implication of this for Fed supervision policy is clear. The way out of the current crisis is not."
How odd. So, when all else fails; tell the truth?
But Feldstein is right; the Fed refused to perform its oversight duties because its friends in the banking industry were raking in vast profits selling sketchy, subprime junk to gullible investors around the world. They knew about the "massive off balance-sheet positions" which allowed the banks' to create mortgage-backed securities and CDOs without sufficient capital reserves. They knew it all; every last bit of it, which simply proves that the Federal Reserve is an organization which serves the exclusive interests of the banking establishment and their corporate brethren in the financial industry. Surprised?
The upcoming global recession/depression will give us plenty of time to mull over the ruinous effects of Fed policy and to devise a plan for abolishing the Federal Reserve once and for all. That is, if they don't destroy us first.
By: pelicanbrief114 22 Feb 2008, 10:05 PM EST Msg. 670223 of 670469 Jump to msg. # Balogna
Please allow myself in expressing my sincere gratitude with your concerns. It is much appreciated. Heart warming.
This will be my first (1st) and Final response. I'm in a gracious/generous mood this fine evening.
Those who have done harm unto others, now find themselves sinking in quicksand with the walls crumbling around them, evidence by the "Fall-out". It's "Only Just Begun" and "You Ain't Seen Nothin' Yet".
The material that you reference is eaten for Breakfast; Lunch and Dinner. Unfortunately, you have not fufilled the required prerequisite credits to enter the classroom.
We've been assured that inventory levels of rubber boots, as well as hard hats, anklets and bracelets are plentiful for those who require such (many). On Sale @ OSTK no less. Feel free to indulge.
Protect and Govern Thyself!!
Got Gold/$ilver/Hard A$$et$?
Got CMKX? :-)
Enjoy you're evening and please don't hit your head on the keyboard!!
PS. While I find myself in a wonderful spirit this fine evening, I have left $1 in your Tip-Jar, as to your normal .25. What a Beautiful evening it is, no?
By: pelicanbrief114 26 Feb 2008, 10:50 AM EST Msg. 672207 of 672252 Jump to msg. # Calling the Bluff
Will Da Boyz attempt to suppress prove futile?
Is desperation from the Suits setting in?
Thinking "T's" as opposed to "B's".
Traders have a saying -- that “opportunity moves to size” -- and we may get to see it play out as a dramatic showdown in the gold market if the IMF receives a go-ahead from the U.S. to sell 400 tonnes of bullion from its inventory. The prospect surfaced yesterday when it was revealed that the Treasury Department apparently has been lobbying Congress to approve the sale, proposed last May by the IMF to cover a widening income shortfall. At a current price of around $939 an ounce, the auction would raise a little more than $12 billion.
That may sound like a lot of money, but in comparison to, say, the quarterly losses that any number of large banks have reported recently, it would be barely enough to shore up the books of even one of them for more than a few months. But those 400 metric tons of gold would look microscopically small in comparison to pent-up demand for bullion from the very largest buyers, most particularly sovereign governments that hold sizable dollar reserves and who presumably are eager to hedge them against further erosion in value.
Billions vs. Trillions
As a practical matter, there has not been enough gold for sale to mitigate the kind of exposure we are talking about, since the foreign-currency reserves held by China, Japan and Europe alone total near $3 trillion. And even that number could prove to be small in comparison to the demand for gold from individual investors, most of whom are undoubtedly more nervous about the erosion of paper money’s worth than the nations that print it. So with such huge potential demand, why on earth did investors dump gold yesterday, causing it to fall $16 in mere minutes when word of Treasury’s support for an IMF bullion sale hit the tape? Considering the facts noted above, there can only be one answer: Because the yo-yos are too stupid to do the math.
Which brings us to the prospect of opportunity moving to size. Traders know that when an exceptionally big block of stock is offered for sale, it has a way of coaxing forth demand that might not otherwise have shown itself. That demand can come from hedgers and arbitrageurs, from long-term investors or short-term traders. In this case, it is likely to come from a buyer or buyers so big that they would risk moving aggressively only if there were a big enough offer to allow them to do so without roiling the markets. And that is what we predict will happen the next time a size block of gold is offered by the IMF: piranha-like buyers will pick it clean so fast that the bankers, disdaining gold as they evidently do, are going to regret not having offered a thousand tons instead. For gold bugs, that will be remembered as the day the hard-money advocates finally called the bankers’ bluff.
We'll leave you with the following quote which sums it all up:
"The love and respect for gold is built into man's DNA, much to the frustration of the central bankers of the world. What stands between central bankers and their dream of running (ruling) the world? Answer -- gold. Why is that? It's because bankers can't print gold or create it out of thin air -- period."- RR
Hmmmmmmm Those Initials (RR) are extremely appealing and just may prove very lucrative,,,,,,, :-)
By: pelicanbrief114 27 Feb 2008, 08:08 PM EST Msg. 673364 of 673607 Jump to msg. # "Message in a Bottle"
"Come now. How can the producers of CNBC allow their reach and influence be continuously abused by people with an agenda? I mean, how many xxxxxxx leaks of the pending monoline deal will they facilitate?
It’s obvious and evident, the underwriters are attempting to prop up shares of ABK, in order to price an offering. This is all very manipulative, if you ask me.
Within my client base, I have many people in the audit business. From what I can tell you, anticipate significant disclosures of bad credit exposure, within the next two weeks.
From what I hear, Goldman Sachs will not give quotes on some of their illiquid CDO’s, without the third party buying an instrument. In other words, the auditor’s are scratching their heads, trying to value the toxic crap, within the banks’ books. They [auditors) are very nervous, with memories of Arthur Andersen fresh in their minds."
By: pelicanbrief114 28 Feb 2008, 11:51 AM EST Msg. 673827 of 673854 Jump to msg. # On the Margin
OUCH!!! That must STING.
UPADTE 1-Thornburg has $300 mln margin calls on mortgages Thu Feb 28, 2008 8:09am EST (Rewrites first paragraph; adds details from filing, stock price)
NEW YORK, Feb 28 (Reuters) - Thornburg Mortgage Inc (TMA.N: Quote, Profile, Research), a lender trying to recover from tough credit market conditions, said on Thursday it has faced more than $300 million of margin calls in the last two weeks following a sudden deterioration in mortgage market conditions.
Thornburg in its annual report filed with the U.S. Securities and Exchange Commission said the calls were tied largely to $2.9 billion of "super-senior, credit-enhanced mortgage securities" that carry "triple-A" ratings and are backed by below-prime "Alt-A" mortgages.
Thornburg said it has yet to realize any losses on these securities but that their market value has fallen 10 percent to 15 percent this month amid "deterioration in the liquidity for these securities and increased difficulty in obtaining market prices."
As a result of this decline, Thornburg said it had "reduced readily available liquidity" to meet future margin calls and might need to "selectively" sell assets if it cannot use cash to meet them.
The Santa Fe, New Mexico-based company nevertheless said it remains "optimistic over the longer term" and said the credit quality of its loan portfolio is consistent with its current reserves for bad loans.
Thornburg concentrates on adjustable-rate jumbo mortgages. It lost $1.08 billion in last year's third quarter and suspended its dividend as credit markets tightened and many investors stopped buying jumbo mortgages. Thornburg recovered to post a $64.8 million fourth-quarter profit and reinstituted a dividend.
Shares of Thornburg fell to $11.00 in pre-market trading after closing Wednesday at $11.54 on the New York Stock Exchange. (Reporting by Jonathan Stempel; editing by Mark Porter and John Wallace)
No problems. What's $300MN in Cyberspace money?
Monopoly anyone? Boardwalk/Park Place?
I'll take the Rail Roads for $300 Alex? Hmmmm There's those RR's again. :-)
By: pelicanbrief114 28 Feb 2008, 02:21 PM EST Msg. 673970 of 674022 (This msg. is a reply to 673850 by klonopin2mg.) Jump to msg. # Klon
The $64 million question.
At present, should current conditions persist, the likely result is a Hyperinflationary Depression with social chaos. Unacceptable!!
One such that has been bandied about, origination in '05 yet conspicuously withheld from public. However, should such materialize, it's merely a replication of present form albeit, with different colored stripes.
On the other hand, conviction/perseverance rests with the "Old School" in order to go "Over the top" and "Register the points on the scoreboard". Very simply put, a return to the "Law of the Land". I, like you and the many great CMKX shareholders have wagered on the Patriots!!
Remember, difficult, challenging times require tough, forceful actions utilizing any and all resources at one's disposal!!
The "Team" brought us to the "Big Dance" and will Chauffeur us Home!!
NO DOUBTS; NO WORRIES!!
Protect and Govern Thyself!!
Got Gold/$ilver/Hard A$$et$?
Got CMKX? :-)
Have a Wonderful Day!!
ps. Mssgr Toone is very well and axiuosly awaits resolution.
By: pelicanbrief114 28 Feb 2008, 04:46 PM EST Msg. 674105 of 674164 (This msg. is a reply to 674016 by elvis-is-here.) Jump to msg. # Lowrider
What I mean is that a trust can open a trading account(s) the same as anyone else. That trust can then purchase shares from the open market just like anyone else, even to the tune of 703 billion or more. That trust can also hold the shares in certificate or electronic form. If certificates are requested, then the usual process through the transfer agent is follwed. The problem is a record is created. That's why the trust would want to leave them in electronic form. If the country where the shares are purchased doesn't report to ADP/OBO/NOBO, then an entry to Cede and Company is never created. Thus, the information publically available still only shows 703 billion outstanding. However, the trust still has the same right, title, and claim to ownership of the company because they were purchased legitimately. It then becomes a system problem (ie stock borrow program, continuous net settlement system, etc) where there are too many claims for the same underlying asset.
The advantage to us is that those electronic markers can then be purchased directly from the trust. When brokers received a request for a cert, UC had to approve the request before the transfer agent would deliver the cert. The trick is that UC wouldn't approve a cert request until that broker purchased his electronic marker from the trust first. Once the marker was purchased, the naked short or failure to deliver was covered with the proceeds retained in trust. Therefore, we retail shareholders own 630-703 billion real shares as the short is gone.
Just ask yourself why Tyler has completely backed away from the opportunity that was handed to us on a silver platter. IMO, someone isn't happy with the final list of bonafide shareholders provided by the task force. It remains to be seen if the concern for those not able to obtain certs is for brokers, retail shareholders, or affiliates of Tyler since only those bonafide with certs will be able to move forward.
By: jay_adobe 03 Mar 2008, 09:04 AM EST Msg. 675893 of 676106 Jump to msg. # We are awash in global and domestic tidbits today. Just look around you; now look farther; now look even farther. See that? That tiny speck on the horizon of the tarmac appears to be a truck as brilliant as a huge Casavant Diamond and as overburdened with bundles of bills, yes FRNs. It's barreling toward us at unprecedented speed and soon will be coming fast and furiously from all directions. Remain steadfast, confident in our investment, and I still believe we are in good hands, really good hands. Enjoy your day and week. Tidbits galore!
By: pelicanbrief114 07 Mar 2008, 08:46 AM EST Msg. 678529 of 678529 Jump to msg. # B-52
"Benny and The Jets"
AP Fed Takes New Steps on Credit Crisis Friday March 7, 8:27 am ET Federal Reserve Announces New Steps to Help Ease the Credit Crisis
WASHINGTON (AP) -- The Federal Reserve is taking new steps to ease the credit crises, including increasing the amount of money it will auction to banks this month to $100 billion. The Federal Reserve says it will make two moves to increase liquidity in the credit markets. First, it will increase the size of its March 10 and 24 auctions to banks to $50 billion each. The auctions had been set for $30 billion apiece. Fed officials say they are prepared to move to even larger amounts at future auctions if necessary.
The Fed also says that, starting Friday, it will begin a series of repurchase transactions expected to reach $100 billion.
By: pelicanbrief114 07 Mar 2008, 09:01 AM EST Msg. 678530 of 678537 Jump to msg. # Bennie Bennie Bennie
Bennie and the Monetary Jets By Mark Thornton Posted on 2/29/2008
The old monetarist tale of the Great Depression, thoroughly refuted in the Austrian literature, is that the Federal Reserve failed to provide enough inflation (i.e., money supply) when the market started to weaken and it allowed the money supply to collapse, and, as a result, the banks failed and the economy went into a tailspin of depression.
They believe that the Federal Reserve acted properly during the 1920s in maintaining price-level stability by providing the banking system with regular injections of money. This despite the fact that the decade was called the "Roaring Twenties," that unemployment was unnaturally low, and that anyone looking at a graph of the stock market could clearly see a bubble in the making.
The new chairman of the Federal Reserve, Professor Ben Bernanke, is a student of the Great Depression and has written extensively on the subject. He famously said (as vice chairman of the Fed) at Milton Friedman's 90th birthday, not to worry, Milton, "We won't let it happen again."
So now that he is chairman of the Fed, he faces the task of trying to clean up the housing bubble and prevent the economy from slipping into depression.
It's a daunting task and he is evidently dedicated to one tactic: inflation now and forever.
Foreclosures and bankruptcies are on the rise, the credit markets are tightening because no one is sure who is holding all the bad mortgage debts, and banks are naturally risk averse with all the signs of recession, including a recent jump in the unemployment rate.
In addition, the dollar is at all-time lows against foreign currency. Oil is now over $100 per barrel, and gold is approaching $1,000 per ounce. Price inflation at consumer and wholesale levels is rising even according to government statistics. Every time the Fed cuts rates, it only makes these problems worse and undermines the value of the dollar. This is also a big problem for Bernanke because, in addition to promising no depression, he also supports inflation targeting where core consumer prices rise by no more than 2% per year.
The supposed lesson of the Great Depression looms always: the Fed tried to inflate but the banks wouldn't help. This time the Fed must find a workaround. Bernanke's technical solution is rather novel. It amounts to bribing the banks to take the money.
It is not surprising that banks don't want to lend heading into a recession. It is also quite natural that banks do not want to lend their reserves to other banks when they do not know their exposure to the subprime (Derivative) crisis. In addition, with all this uncertainty it is also not surprising those banks are reluctant to go to the Fed's discount window for reserves, because then you reveal that you are in trouble, and subsequently your stock price gets hammered, and all of your customers and creditors get nervous.
Bernanke is evidently dedicated to one tactic: inflation now and forever.
At the discount window, banks can temporarily exchange some of their assets for cash for which they pay the Fed the "discount rate" of interest. Actually, in researching this article, I found out that the Fed discontinued the "discount rate" data series years ago and failed to notify the public. They now chronicle a data series called the "primary credit rate" (this is not the "prime rate"). Even banks in financial difficulties can borrow "secondary credit" at a slightly higher interest rate.
So how does Bernanke jump-start the banking system? (Note to self: why is it called the banking system, rather than the banking industry?)
Bernanke decided that, instead of waiting for timid customers at the discount window, he would announce a series of auctions called Term Auction Facilities, or TAFs, where the high bidders would get the bank reserves. This maintains the bank's privacy, or at least reduces the onus of approaching the discount window, and it guarantees that new reserves will enter the system. According to the Fed:
The TAF is a credit facility that allows a depository institution to place a bid for an advance from its local Federal Reserve Bank at an interest rate that is determined as the result of an auction. By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help ensure that liquidity provisions can be disseminated efficiently even when the unsecured interbank markets are under stress. [emphasis added]
What this accomplishes is that it almost guarantees that banks and a "broader range of counterparties" will get injected with new reserves from the Fed and reduce their need to hold traditional reserves from their customers' accounts. Also, it provides banks with the opportunity to put up a "broader range of collateral" for the loans at the discount window, including performing subprime mortgages!
Rarely in economic statistics do you see straight lines, but Bernanke's mechanical if not draconian approach can be seen in the following two graphs. The first shows the amount of "term auction credit":
The next straight line — straight up — is the same basic data but shown over the history of the Fed. (Note that there was little borrowing at the discount window except in the aftermath of WWI, WWII, and the Vietnam War). Basically the series stays near the zero line and occasionally pops up to a few billion dollars. Recent history — the last two months — has it soaring to close to $50 billion.
Some commentators say that the Fed has merely taking charge, rising to the occasion, and attempting to "shake it loose together." However, others would say this is all an act of desperation. If desperate circumstances call for such drastic actions, then Bernanke's actions — rather than words — indicates that we are in desperate circumstances.
Whatever the case, while merchants and consumers wail about the lack of credit and high interest rates, the banks are getting rate cuts and credit mainlined via the Term Auction Facility. The Fed's policies have also greatly reduced interest rates for savers in their savings and checking accounts, certificates of deposit, and money market accounts.
It should come as no surprise to readers that the auction rate is less than the old discount rate. Every winning bid in the first six auctions has been below the discount rate, usually by more than half a percentage rate. Lower rates and the cover of darkness — this is a nice deal for the banks. Bank borrowing from the Fed is so large that it is actually greater than their total reserves on hand.
The important question is, who's right and who's wrong. Can Bennie make the banks and the bad debts ageless? Can he live up to his promise to Milton Friedman and maintain his inflation targeting promises? It would seem that he has put the faith in monetarism and government-managed money on the line. So stick around to find who's right and who's wrong.