The Fed's Funky Formula - Public and Congress Don't Compute

Senator Bernie Sanders to Fed. Reserve Chair Bernanke - Show Me the Money!. This is a must watch clip and note the condescending attitude, the expression of disdain, from Federal Reserve Chairman Ben Bernanke on Sanders basic question of who is getting $2.2 trillion dollars in short terms loans from the Fed.

 

Other interesting things to note from this hearing, Bernanke admitted AIG operated like a hedge fund:

If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.

Alright! You're pissed, so are we. So why are you doing this?

TOP offers options on a short-term fixed rate Term Securities Lending Facility (TSLF) bond-for-bond loan of general Treasury collateral against a pledge of eligible collateral. The term of the loan typically spans a short period of traditional collateral market dislocation, such as a quarter-end dates. While the price of the loan is fixed, the price of the option is determined by competitive bidding.

We all know this plan will lead to a Zombie financial architecture:

Every plan we’ve heard from Treasury amounts to the same thing — an attempt to socialize the losses while privatizing the gains. We’re going to buy up all the bad assets at premium prices; no, we’re going to offer the banks guarantees against losses; no, we’re going to let private investors buy the stuff, but offer them de facto guarantees against losses in the form of non-recourse loans.

Now here's additional AIG tidbit from Bloomberg:

AIG has reduced the number of bets made by the financial products unit that sold credit-default swaps by more than 25 percent since October and cut expenses by “ hundreds of millions” of dollars, she said

Only 25%? Only 25% when it's well known that these CDSes are a massive unregulated problem and it is acknowledging this division in AIG was (is?) operating like a global Russian roulette wheel?

Meanwhile in a House hearing, it was brought to light just how many TARP recipients have offshore tax havens!

 

Even worse, the Fed wants even more tools upon which to give out and loan taxpayer money and it appears to be bypass Congressional oversight.

Anyone about to jump on the Ron Paul let's audit the Federal Reserve bandwagon yet? We all gettin' religion?

Meta: 

Comments

Let's go one step further.

Trying to rebuild Humpty Dumpty is foolhardy and futile. I've heard enough from these clowns.

I think we need to repeal the Federal Reserve Act of 1913. Forget the Federal Reserve Note and debt money. Let's convert to non-inflationary Treasury Notes and put control of the money supply back in government control. All debt obligations are forgiven.

Declare say 100 solvent banks as new US Banks and infuse them with new capital and completely circumvent the existing banking structure. These new US Banks would be strategically located throughout the USA. The current Masters of the Universe and their "too big to fail" albatrosses can go the way of the dodo bird.

You must have Javascript enabled to use this form.

house of cards, systemic risk, contagion and moral hazard

Ok, I can see the great concern and we did see the fall of Lehman cause a crash of the interdependencies created between all of these derivatives....

this is a real problem...but I do not see them decoupling the system and isolating the problems with coming up with almost another fire to put out a fire in this new TOP as well as feeding the Zombie banks.

I sometimes wonder if they should have just let the entire system collapse, meltdown in October and then pull a FDR..
shut the entire thing down for a couple of weeks and open up as you say a bunch of good banks, insure the deposits and start sorting through the rest of it all via a Resolution Trust Corporation etc. type of structure.

but in their defense, the legitimate reason (I think) they are doing this is to stop the collapse of the house of cards....
but they seem instead to be perpetuating it.

I don't know which economist/expert coined the term Zombie banks but it is so absolutely descriptive of what's going on....I think whoever coined this phrase should get some sort of award.

You must have Javascript enabled to use this form.

Zombie Banks.

According to Wiktionary:

Etymology
First used in reference to the Asian Financial Crisis of 1997, possibly coined by the economist Edward Kane.

And, yeah, there are an awful lot of similarities to that situation and how it was handled, to our present day circumstances.

Fundamentally though, the concept of "money as debt", which is our current system, is doomed to failure since it depends upon everlasting and continuous growth. The Greenspan/Bush monetary expansion and credit bubble just accelerated the inevitable. This is the harsh reality that no government official wants to admit or perhaps feels they can be allowed to admit. Sooner or later though, it will become evident a paradigm shift is necessary. We have reached, if not surpassed, the limits to growth.

You must have Javascript enabled to use this form.

Inasmuch as the

Inasmuch as the interlinkages are global...absent a global currency board, it's more comprehensible how this ultimately happened. Basically, we're at the next major stage of a transition to a true global community.

You must have Javascript enabled to use this form.

Seriously.

At some point when do we say enough. Let's blow this mess up and start over. This is getting ridicules - jumbo loans, pensions, 401ks after that. We are moving from one crisis to another at a too rapid of a pace.

You must have Javascript enabled to use this form.