Its becoming increasingly difficult to keep up with all of the Federal Reserve’s new programs to keep the system solvent, well lubricated, and functioning.
Now, you can track all of these programs via the Federal Reserve Bank of New York. They published a handy guide counting all the ways you can engage in Moral Hazard borrow from the nation’s lender of last resort.
These Five were created since August:
• Term Securities Lending Facility (TSLF), announced March 11, allowing securities dealers to get Treasurys at auction for 28 days
• Primary Dealer Credit Facility (PDCF), announced March 16, for securities firms to receive overnight loans
• Term Auction Facility (TAF), announced December 12, for banks to get funds at auction without the discount window stigma
• Single-Tranche OMO (Open Market Operation) program, announced March 7, allowing securities dealers to get 28-day funds
• Term Discount Window Program (TDWP?), announced August 17, extending the length of discount-window loans to 90 days
Hat tip: Real Time Economics
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Source:
Forms of Federal Reserve Lending to Financial Institutions
Federal Reserve Bank of New York
March 2008
http://www.newyorkfed.org/markets/Forms_of_Fed_Lending.pdf
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Well the headline now at the Times says consumer spending was down in February and “Inflation Threat Recedes”. Of course, this is citing the “core” gauge without the direct costs of food and energy which is what Joe Main Street is spending all his money on. And nothing about deflation.
At some point, Barry, I’d be interested in hearing both what you think the Fed is doing *right* as well as doing wrong. You made a comment in the last few weeks about them doing the right thing, which sort of caught me off guard.
The taxpayers keep getting sucked in deeper and deeper. The Fed is guaranteeing more and more loans; at the same time, Fannie and Freddie are taking on more and more risk, with the commensurate guarantees from the taxpayers in the event that they get into trouble. Add to this the proposals from Barney Frank et al. who want to provide far greater underwriting of risk by the taxpayers.
How many different ways are there to push on a string?
Lots more if they go to 5 letter acronyms.
1. USA is loaded with debt
2. The cause of the current problem is everyone, houses, banks, individuals, firms, companies all have too much debt
3. the proposed solution is taking on more debt
4. does it sound like the proper solution to a naked eye?
Marc Andreesen has a scathing but brilliant post up today titled Congratulations, you’re paying Jimmy Cayne’s ( Bear Stearns CEO ) marijuana bills!
http://blog.pmarca.com/2008/03/congratulations.html
Here’s Marc’s analysis of what Bear Stearns would have been worth if the Federal Government hadn’t backstopped the deal with a $29 billion loan.
The US taxpayer is loaning Bear Stearns and JP Morgan Chase, Bear Stearns’ acquirer, $29 billion — just revised from $30 billion, simultaneous with JP Morgan Chase raising its acquisition price for Bear Stearns to $10/share from $2.
Without that $29 billion of taxpayer money, Jimmy Cayne’s stock would be worth $0/share, and if you multiply that by 5.66 million shares, the total would be $0.
The $29 billion taxpayer loan is almost certain to lose money as it is being used to backstop stinky assets on the Bear Stearns balance sheet — the same assets whose plummeting fall in value catalyzed Bear Stearns’ effective bankruptcy.
It is virtually certain that taxpayers are going to take some loss on that $29 billion loan.
When we do, we will have the immense satisfaction of knowing that the first $61.3 million of those losses represent a direct cash transfer from US taxpayers to Jimmy Cayne.
CNBC has me going nuts today…Cramer blaming everything on shorts, when he was one himself once…Melissa Francis saying “market down 40…not so bad…what did you want??”… and Dylan Ratigan bringing his Fast Money buddy Najarian on to talk his own book and promo Dylan’s show. What a network…
So the solution to a problem caused by an arcane and opaque system of dodgy loans is an arcane and opaque system of dodgy loans? No wonder the educational system in this country is so screwed up. Why should the kids learn critical thinking skills if the grownups don’t have to?
The taxpayer did not pay one dime for the loan to BSC via JPM. That was money created out of thin air in return for BSC’s dodgy securities. If the securities drop in value, and the Fed calls them on it, JPM will need to make up the difference. If JPM is unable to do so due to it is insolvent, heh heh, fat chance, then the Fed, which is made up of PRIVATE banks will need to raise the capital to balance it’s books. Since government is unwilling to create it’s own money to give them, the Fed would need to sell some of its gold. It has 11 billion worth of gold, but based at 40 dollars an ounce, so its really worth 250 billion. They could sell some of their gold at market price to cover their losses.
BTW, of the 17 remaining primary dealers is bailing out, 10 of them are foreign companies based elsewhere which operate in the US. Globalization, ain’t it great.
pft ?? so the fed should sell all of their gold, and then change the mandate so that they can print money to save the taxpayer ??
Is the FED above the law ??
Why is the FED ,,, that you say is made of private banks, so powerful ??