Fed Opens Yahoo Lending Facility (YLF)

Sad but true.

The Fed has created a no-fail environment for big banks and their investors, shielding them from any real world consequences for thier bad decisions, so why not all of corporate America?

Nobody’s saying much about the overall market implications of the busted MSFT-YHOO deal. A failed employee buyout of United Airlines in Oct. 1989 provoked a one-day, 7 percent drop in the Dow. Surely nothing like that would happen again, right?

Oh well, if it does, the Yahoo Lending Facility may turn out to have been a trial balloon posted anonymously by Tim Geithner. Paint that tape, buddy! CONfidence is everything.

It is a win-win situation for the markets!

Google Wins!

MSFT wins — no buyout means share bounces back — means nasdaq will have a 2-3% up-day!

Yahoo doesn’t matter. If fed steps in — a 5% up-day!

YES!

Nihilism — Bingo! LOL!

Cancellation of a $50 billion deal just means it’ll come back next week as an $80 billion deal.

Get ready for our first 1,000-point up day. Would you sell me some S&P 1600 calls for a nickel?

The problem with this proposal is that YHOO does not have enough bad debt.
What should the Fed accept as collateral?

The Lending Auction Facility, or “LAF”.

Nothing would suprise me at this point…. Our fed is a joke of manipulation and smoke and mirrors….. The Fed and our Government sicken me in a manor I never thought possible…….The manipulation and smoke and mirrors are unbelievable in nature….. The random Joe on the street has no idea how twisted our system really is…..I hope MAJOR changes (I don’t care if the changes cause major pain to our markets and economy) are coming….. Otherwise, our kids and grandkids will inherit a disgusting mess filled with empty debt….. Please pass me the puke bucket!

Maximo–

(Yeahhhh, what he said!!) Very nicely summed up my friend.

It is indeed just stomach turning at this point, nothing left to say.

“The Fed has created a no-fail environment for big banks and their investors, shielding them from any real world consequences for thier bad decisions, so why not all of corporate America?”

Excellent point! Investment Bank failure wouldn’t cripple the country, contrary to what the hoes enslaved to the financial industry wants us to believe.

And it is not only corporate America: Now, politicians want the Fed to assume student loans liabilities for investors.

Quite frankly, this is something the Fed should have bailed out way before Bear Stern.

But short-changing the future of our country is supposed to be acceptable, so BS got the dough and students…well, we’ll see won’t we?

I wish people would stop giving the FED more ideas!!!!

«Investment Bank failure wouldn’t cripple the country,»

Actually that is quite optimistic an assumption. The whole of the Usian co-prosperity sphere is running on financial capital, and when investment banks function reasonably and are regulated they provide an essential service. Also, the Usian co-prosperity sphere economies are drugged on finance and any sudden withdrawal is going to be painful.

You see, there is a good case for an orderly, slow, managed shutdown of large financial institutions, as long as at least these two conditions are met:

* The salvage operation is not a whitewash for those who have brought about the need to do it. At the very least severe financial penalties and tunneled asset recovery from management and a number of prosecutions.

* The salvage operation is properly accounted for as a fiscal, not monetary, side operation, as it is in effect an expenditure of public funds, not monetary policy.

The current bailout is very very bad because it fails on both points, not because it is entirely unnecessary. Now perhaps the financial system and the Usian economy would survive without damage a collapse of the investment banking sector, but odds are it would be quite bad. However there is a good case that odds are that a whitewash bailout done by the Fed will have in the medium-long term even worse consequences than no bailout.

I am against this bailout, not any bailout, because sometimes regrettably bailout are necessary (most markets are unstable and rigged and need some adult supervision), but this bailout is outrageous and probably worse than no bailout.

“Yahoo Lending Facility”

It’s a joke, right?

Fredrik
Sweden

It’s cute but…..

I’m on record as being reasonably more skeptical than the next guy and satire is my hobby. But there seems to be a lot of stoning of the Fed going on here by every commentator – that while it may be proved to be deserved in the future, has not been yet. For TAF and TSLF are not outright purchases of dodgy collateral at bogus prices, but loans against securities that only might be so. They might in the end be rolled indefinitely, though likely won’t. But lets keep a couple in things in perspective – irrespective of historical culpability of the central banks for historically easy money and lax oversight: (1) It is likely that commercial Bank common shareholders and Bank PREFERRED shareholders will be wiped clean before the Fed loses anything other than a financing spread on TAF and TSLF, at which time the Fed will end up as the owner anyway in a Scandinavian-style nationalisation. In this case they could be accused only of ameliorating “the unwind”, for no good money was thrown after bad (though bank managers might have been allowed to continue to pay themselves for a while longer)

(2) The Fed really comes lower-down the totem pole in terms of deserved finger pointing for those wanting to blame someone. This administration (8 years of fiscal stupidity) ranks far higher, as do the American people for electing them, and leveraging themselves to points of absurdity and insisting upon cheap petrol. Yes the Fed could have spanked them early, but that is not specifically in their mandate.

(3) Foreign central banks are much more to blame for current bountiful global liquidity. Their accumulation of USD reserves – (artifically keeping USD rates lower than market-clearing) and much of it unsterilized, has down more to boost global liquidity and inflationary pressures than Fed policy.

I hate defending these guys, and would have preferred they used their tools historically in order to have prevented or throttled the size the current predicament, or at least placed pressure on the admin to fiscally clean house, and foreign central banks to stop shenanigans. But the critiques of TAF and TSLF and feds attempts (out of quite legitimate systemic concern) to cushion the unwind, seem over the top for what at present is a reasonable undertaking, unless their detractors are prepared for the Argentina-like dislocations that would accompany rapid unwind, and multiple bank failures – many which would be the result only of a spiral from having to sell position to make position.

«For TAF and TSLF are not outright purchases of dodgy collateral at bogus prices, but loans against securities that only might be so.»

This is sheer fantasy: we are talking about a very large number of $500,000 mortages on $250,000 properties, and lending good securities by taking bad ones from insolvent parties.

«They might in the end be rolled indefinitely, though likely won’t.»

The whole rationale for the swapping of $500,000 mortgages on $250,000 properties for cash (for treasuries are in effect cash) is to prop up insolvent institutions. Either those institutions become solvent because of the carry trade on 2% loans or because the properties appreciate to $600,000 thanks to 2% interest rates, or those loans have to be rolled indefinitely.

The $500,000 vs. $250,000 problem otherwise won’t simply go away.

«It is likely that commercial Bank common shareholders and Bank PREFERRED shareholders will be wiped clean [ … ] (though bank managers might have been allowed to continue to pay themselves for a while longer)»

But please don’t be freakingly naive again — the mortgage scam is not a scam by bank shareholders against the public purse, it is a scam by bank managers against both their shareholders and the public purse. A classic example of tunneling.

What bank executives are afraid of is post-scam liability, because they have already pocketed colossal compensation and option gains; the Mozilos, ONeals, Caynes, Princes could not care less about their shareholders, as they have already cashed out massively. They are afraid of bankruptcy and lawsuits and prosecutions, and the fed and the government are in effect whitewashing away most of that. There are some risks still, but compared to what happened to the S&L scam kings it is nothing, and the S&L scam kings by and large got away wealthy and scott free.

«The Fed really comes lower-down the totem pole in terms of deserved finger pointing for those wanting to blame someone. This administration (8 years of fiscal stupidity) ranks far higher»

This is a difference without a distinction as the English say. The Fed is doing the administration’s dirty work. In the end both are sponsored by the Republican donor class.

«as do the American people for electing them, and leveraging themselves to points of absurdity and insisting upon cheap petrol.»

More Republican donor class. Most voters are property speculators, and essentially all campaign donors are asset owners.

«Foreign central banks are much more to blame for current bountiful global liquidity. Their accumulation of USD reserves – (artifically keeping USD rates lower than market-clearing) and much of it unsterilized, has down more to boost global liquidity and inflationary pressures than Fed policy.»

Sure, but it seems pretty obvious to me that this has been done on the basis of some “understanding” with the Fed and the administration, as a way to fund the Iraq war without overtly appearing to do so.

«I hate defending these guys, and would have preferred they used their tools historically in order to have prevented or throttled the size the current predicament,»

The only defense for the Fed is that the USA are at war and the first and foremost duty of the Fed is to ensure that the USA government spending for that is financed as cheaply as possible and the home front is kept as happy as possible, no matter what the long term consequences are, as wars are damn serious matters. After all the wars have been overwhelmingly approved by both parties and the vast majority of the voters, and the Fed cannot play opposition to what has been a democratic decision, it can only help supply the financial ammunition for that.

But the Fed has been a bit overzealous in its management of a happy-go-lucky war economy, well beyond what an institution that is not supposed to be a tool of the Republican party and its donor class should have done.