Sunday, December 13, 2009

Fed to Continue to Bankroll Banksters

Hidden in this article, I’m starting to feel a compelling need for Vaseline.

BernankeBendOver US Federal Reserve policymakers will aim to quell this week speculation about an early exit from their massive stimulus effort even with the economy showing more signs of recovery, analysts say.

"Traders work the floor at the New York Stock Exchange. US Federal Reserve policymakers will aim to quell this week speculation about an early exit from their massive stimulus effort even with the economy showing more signs of recovery, analysts say."

The Federal Open Market Committee (FOMC), which opens a two-day meeting Tuesday, is unlikely to make any change to its near-zero interest rate policy or its efforts to flood the financial system with money to restore credit flows.

"I think they are very much concerned about the prospects for recovery," said Michael Gregory, economist at BMO Capital Markets.

"The tone of the Fed has been trying to counter the expectations building in the market" of moves toward a hike in rates or withdrawal of the stimulus described by some as "quantitative easing" to pump money into the financial system, Gregory said.

The federal funds rate has been in a record-low range of zero to 0.25 percent for the past year, and the central bank is in the midst of a program injecting more than a trillion dollars into the system, mainly through the purchase of various government and agency bonds.

Fed chairman Ben Bernanke last Monday went out of his way to quash the notion that the Fed was closer to rate hikes in view of better economic news, especially in the labor market.

"Though we have begun to see some improvement in economic activity, we still have some way to go before we can be assured that the recovery will be self-sustaining," Bernanke said in a speech.

Bernanke said the recovery faces "some formidable headwinds," particularly the weak jobs market and tight credit conditions… [emphasis added]

Inserted from <Alternet>

Now I think I understand this, but if I get something wrong, would one of the economists or accountants who read here please correct me?  If I understand correctly, the Fed gets the money for this stimulus to the Banksters through government borrowing.  Currently the rate of a 91 day T-bill is 0.5%.  If the Fed is lending to Banksters at 0.25%, we the taxpayers are picking it the tab for half the interest on the money they get.  Now the biggest single reason that the jobs market isn’t picking up is that business people, especially small businesses can’t get the credit they need to do business.  There should be plenty of money available for loans to them.  So what are the banksters doping with all that cheap money from the Fed?  Instead of lending it, which is their so-called reason to exist, they are investing it in the stock market for profit.  Then they are making even more profit by raising the interest rates we pay for loans and credit cards for more profit.  Then instead of loaning some of that profit, they are using it to pay themselves obscene bonuses.  This is the thanks we get for bailing them out.  Are you mad yet?  If not, why?


the walking man said...

Been mad for months.

and this article helps explain a bit of the why I am pissed off.

rjs said...

im not an economist or accountant, but ill give it a shot tom, and if this is incomprehensible ill talk to you later...what is at issue in the article you posted is when the Fed will start to withdraw from its "quantitative easing", aka "printing money" policy; since the crisis began, the Fed has almost tripled its balance sheet by buying treasury debt and agency debt, as well as picking up some toxic assets from the likes of AIG...this monetary stimulus risks being inflationary, so there is pressure on the Fed from the "hawk" faction to withdraw from this "easing"...the first 5 links this week and the first links in almost every post on my ggo blog deal with far as your analysis goes, its pretty much correct, the banks are getting money on the cheap from the Fed and investing it in assets rather than loaning it to business and consumers...almost all of their profits come from trading...the real inflationary threat thus is not at street level, because that money they're "printing" isnt going consumers who would drive up prices of purchased goods, it is in the creation of another asset bubble, not real estate this time, but of financial instruments and commodities...

Gwendolyn H. Barry said...

TC - here's the deal McNeal! Matt Tiabbi (per usual) tells it fully:

Gwendolyn H. Barry said...

opps... missed walking man's illuminations....:( opps

Oso said...

I know there's fear the govt will stop fiscal stimulus and the FED work to begin raising rates too soon,like happened in I believe 1937.The economy quickly sunk back to Depression level.

From my limited understanding,they begun to pay interest on reserves last year and it was to give the FED the ability to influence its Target Rate from the Demand side (kinda sorta) rather than from the Supply side with its Open Market Operations of buying/selling Treasuries.

Lisa G. said...

TC - you and rjs are mostly right. Keep in mind that all the big banks, B of A, JP Morgan Chase, Shittygroup, Wells Fargo, etc. are essentially insolvent at this point because they still have all that toxic sub prime and derivative crap on their books. The money they get from the Fed helps prop up their Balance Sheets so that they don't look insolvent. But without those guarantees from the Feds, the FDIC would take them over and split them apart. They don't want that to happen - remember right before the big meltdown, like in Jan 2008, these big banks were gobbling up smaller ones (like WaMu) with their own toxic crap. And since they are essentially getting free money from the Fed, with trillions of guarantees of more if they fuck up even worse (which is always possible because they like their bonuses), they have no reason not to take the money. Now those banks I mentioned above should be doing much better than they are because the market is up over 50% since March, so if they invested wisely and stayed away from speculative instruments (like the packaged mortgages, derivatives, swaps, etc.), they'd be doing fine. But since that stuff is riskier, it pays a higher premium, so they do it anyway. In other words, they are doing the same speculative trading that got them into trouble in the first place - and why not, because the stupid Fed will just give them more money. It's a big circle jerk. The Fed should cut them off and let the "free market" take care of them. All of them would go down in a matter of months in the world's biggest financial meltdown ever. If Congress had any balls (and we know they don't), they'd say 'party's over boys' and let them sink or swim. That would stop the speculative buying asap and everything would normalize eventually. A couple would go under, but it wouldn't be the financial catastrophe that everyone keeps saying. Lehman failed and no one died. Let them all wallow in their own shit of their own making. Besides, these people don't MAKE anything except paper - how are they increasing jobs? Because we all know they certainly aren't lending any money (the traditional way banks made money). Hmmm?

Lisa G. said...

This question is for Oso - I worked in the gaming industry for years and Native American tribes were some of our biggest customers. Yet you called yourself an Indian. We were told that was offensive. (Kind of like African-Americans calling themselves the N word, but we white people don't dare say it.) I want to be PC here, so which is it? I like Native American because you were the first Americans, even if the Euro whites tried to wipe you out (sorry about that, btw). And you needed a name to distinguish yourselves from the Indians from India. So which is it - Native American or Indian, or do you not give a rat's ass? Or is it the same with African-Americans - you can call each other Indians and we have to call you Native Americans? Either way, good on the various tribes making shitloads of money off stupid white people - we SO totally deserve that! Foxwoods casino in CT is the largest casino in the US - and they make TONS of money. I myself don't go to casinos (I have enough bad habits!), but I see the attraction. People always ask me how to beat a slot machine (what my company made) and I always said "Keep your money in your pocket." They aren't called one armed bandits for nothing!

TomCat said...

Mark, if you and Gwen both post the same link, I'm taking the time to read it. I did. It is most upsetting.

RJ, thanks for adding the 'asset bubble' angle.

Gwen, please see my reply to Mark.

Thanks Oso. That's my understanding as well.

Lisa, I did not know they were still doing the speculative trading. That is a worry. They need to be broken up before they fail. On Oso, I call him Oso ;-)

Gwendolyn H. Barry said...

TC - I can't speak for any among the Nations except my teachers & GrandMother who has declared to her clan that they are Indian....America Indian. She has eschewed the Native American...for clan or tribe name / or Indian.

TomCat said...

And I know a couple who hate "indian". I guess we find out on an individual basis and go from there.

Lisa G. said...

TC - how do you think that Goldman made $27B up to the 3rd quarter? I mean the market is up and all, but it aint up that much. They're all still doing it because they know that they're backed up by the Fed. Assholes.

I read that article posted by the Walkingman and Gwendolyn - most depressing. Even the underlings are products of the same evil empires. Here's the money quote: "There was concern that a broad grant to ban abusive swaps would be unsettling," Frank explained.

Unsettling to whom? The assholes that caused the financial meltdown? Well, that would just be HORRIBLE to have their feelings (i.e., greed) hurt now, wouldn't it?

Oh, and note to myself - use paragraphs. I get so wrapped up in writing that I forget to use them. Makes my posts hard to read. I'll try to do better in the future. :)

Oso said...

Lisa G.
first,thanks for the financial info,I actually understood everything you wrote.Still learning about economics and finance.
And I agree we should've taken the FDIC approach,I think it's called Prompt Corrective Action-fired all the insolvent banks mgmt,wiped out the equity,recapitalized then sold them.Maybe to Indian casinos!

I'm old school so say Indian,as do my daughters. When I was young Black people were called Negro,saying Black was almost a revolutionary act.Then eventually the term African-American began to be used.This is of course a generalization,but I notice a lot of older Black people say Black and younger Black people say "African-American.May or may not be accurate.

But most older (40ish and above) friends and family of mine all say Indian,sometimes write NDN like on hats and I see younger people say Native or Native American.

Just not Chief !

BTW,I look Mexican I guess so one time a cop pulled me over and said "step outta the car Pedro". I told him I wasn't Mexican,I'm Indian. He said "Ok Sittin' Bull get the hell outta the car".

LOL so I guess he and I were able to agree to disagree.

MadMike said...

LOL Oso!

Great article TC.

rjs said...

lisa really nailed it on the banks; ill just provide links to back up what she has posted:
Chart of the day: The big banks get bigger (shows the growth of the big four; now 38% of the banking system) and How Goldman Sachs Made $3 Billion 12 Months After We Bailed Their Lucky Asses Out
Here is the Goldman, Sachs & Co. revenue break down for the past 3 months:

Financial Advisory-M/A: 325 million.
Equity Underwriting: 363 million.
Debt Underwriting: 211 million.
Trading-Principal Investments: 10 billion

on Feds funds rates, krugman has argued that according to the taylor rule they sould be negative 6%

Oso said...

thanks for the links.I like Dylan Ratigan-nice to see financial media people with working brain cells!

an average patriot said...

I really do not see any recovery! The wealthies economy is recovering because we bailed out Capitalism. The economy of the average American is not going to recover until they are helped with health insurance and put back to work.

Distributorcap said...

i have the solution - let the whole damn thing collapse and lets start over - really --- and this time south carolina, kansas, louisiana and joe lieberman are not allowed in the country.

seriously - band aid after band aid for the institutions that have only one goal - make money for the execs. lawmakers that are actually PROUD that people are dying from no health care.

rome in 476AD had it better.

this country is too big and too expensive and way too split to keep spening money keeping it together any more. let texas go already

rjs said...

let me bring this thread all the way back to where the article started, with the discussion of the Feds exit strategy; here's an article which (over)simplifies the debate: Thoughts on Fed's Exit Strategy: Stephen Roach vs. Mish
btw, i tend to share roach's sense that this exit will be very tricky; Mish is just doing what he does best, which is rant...

TomCat said...

Thanks Lisa. I often do the same thing. I just keep typing until I run out of rage... temporarily.

Note to self: Don't call Oso Chief. Medicine Man? ;-)

Thank Mike and RJ.

Jim, I completely agree.

But DC, if we kick out Texas, we'll have to build a wall to keep the damn Texicans out. ;-)

Oso said...

Just call me for most of my coworkers !

Gwendolyn H. Barry said...

they are calling me loads of OTHER names last two days.... LYAO

rjs said...

Cleaners 'worth more to society' than bankers - study - BBC - Hospital cleaners are worth more to society than bankers, a study suggests. The research, carried out by think tank the New Economics Foundation, says hospital cleaners create £10 of value for every £1 they are paid. It claims bankers are a drain on the country because of the damage they cause to the global economy. They reportedly destroy £7 of value for every £1 they earn. Meanwhile, senior advertising executives are said to "create stress". The study says they are responsible for campaigns which create dissatisfaction and misery, and encourage over-consumption. And tax accountants damage the country by devising schemes to cut the amount of money available to the government, the research suggests.

TomCat said...

LOL, Oso!

Gwen, like Hottie?

RJ, that's a fascinating slant on it.

rjs said...

here's a chart which tellls the whole story...

TomCat said...

Dang!! Steep curve!