Re: Fed again takes steps to boost market liquidity

On Fri, 14 Mar 2008 08:43:12 -0500, "Jean Paul" <jobbahut@xxxxxxxxxxx>
wrote:


"El Castor" <No_One@xxxxxxxx> wrote in message
news:bt9kt3p7v6ul5549d330b7nfc55ja05l21@xxxxxxxxxx
On Thu, 13 Mar 2008 19:28:33 -0700, Rita <Rita@xxxxxxxxxxx> wrote:

On Thu, 13 Mar 2008 18:05:11 -0700, El Castor <No_One@xxxxxxxx> wrote:

On Thu, 13 Mar 2008 15:37:52 -0700, Rita <Rita@xxxxxxxxxxx> wrote:

On Thu, 13 Mar 2008 13:35:47 -0700 (PDT), mg <mgkelson@xxxxxxxxx>
wrote:

On Mar 13, 9:14 am, Rita <R...@xxxxxxxxxxx> wrote:
On Thu, 13 Mar 2008 12:38:52 GMT, Rumpelstiltskin



<PleaseDoNotReplyByEm...@xxxxxxxxxxx> wrote:
On Thu, 13 Mar 2008 07:21:56 -0500, Gary <n...@xxxxxxx> wrote:

On Wed, 12 Mar 2008 19:57:50 -0700, Rita <R...@xxxxxxxxxxx> wrote:

On Wed, 12 Mar 2008 17:42:59 -0700 (PDT), mg <mgkel...@xxxxxxxxx>
wrote:

I think I read somewhere that the Fed's rescue attempts were now
up to
about 3/4 of a trillion dollars. It's not hard to imagine that
they'll
go way beyond that. A few trillion for the banks, a few trillion
for
Iraq and the oil companies, a few trillion for rich tax payers.
After
awhile it all starts to add up and in the meantime people that
work
for a living and people who are retired are seeing their expenses
go
up and their income stay the same or go down.

May I ask a dumb question. Where does the money come from the Fed
makes available? What if the borrowers default? In other words,
how does this work. Do they get actual money or credit on the Fed?

They have a printing press in Washington that they laughingly refer
to
as the "US Treasury". You say the Forger in Chief needs a
trillion dollars ? Just a second !

The serious part is that when Bernanke runs off an extra trillion,
it devalues the People's money by that much. We are now not only
faced with inflation -- but watered down money. Oh, well -- the
alternative was to tax the hedge fund managers and war
rofiteers --
and we can't have that. How would they pay for McCain's
presidency ?

I'm so happy that some people understand this, even though
most still don't, or at least they behave and think day-to-day as
though they didn't.

I would still like to have my questions answered in some detail.
Please? Was the money just created out of thin air? Was an
extra trillion that didn't exist before suddenly produced?
I want to know the mechanics.

I'm not sure exactly how this works, but I think they simply issue
government bonds in exchange for the phony collateral. So, I'm
guessing what happens is that the Fed borrows the money in the form of
printing bonds in order to loan it to the banks, then if the banks
default it becomes a permanent part of the national debt. I believe
that the huge national debt combined with the low interest rates (and
the trade deficit) are probably what is causing the dollar to drop and
inflation to rise. So, the Fed's actions probably just add to the
problem from the point of view of the consumer.

Why does the Fed think these banks will be in a position to
repay the debt, considering that their customers who took out
these loans have been unable to meet their payments? I guess
I don't get it. Those properties that have been foreclosed
and are now owned by the banks have no doubt loss a great deal
of value if the banks are able to resell them to worthy borrowers.

Rita, I haven't been following this thread, but I've looked at a few
of the posts and I think you are being misled. As the nations central
bank, the Fed is sitting on various kinds of reserves totaling in the
$60 - $70 billion range. These assets are used for short term loans to
banks with assets that are in need of cash to make loans or to satisfy
short term debts. Banks also do this among themselves, and with large
institutions. Back when I was involved with the securities business, I
worked for a large bank and did billions of dollars in these short
term collateralized loans, known as repurchase agreements, or
repos/reverse repos for short. Many of these were for as little as one
day. The fed also uses it's assets to buy and sell US government
securities -- known as open market operations. They do this to
regulate the growth of the money supply, by either injecting money
into the banking system or soaking some up.

Lately the sub-prime hysteria has spread to the securities of federal
agencies such as FNMA and Freddie Mac. These agencies buy good quality
mortgages from banks and resell their own securities to finance the
operation. This gives the banks the cash they need to make more loans
to finance the purchase of homes. Unlike GNMA securities which are
guaranteed by the full faith and credit of the US government, FNMA and
Freddie Mac securities only have an implied federal guarantee. Lately
those implied guarantee securities have come under fire as the sub
prime panic has caused doubts about the ability of FNMA and Freddie
Mac to make good on their debts. This has made it difficult for banks
to use those agency securities in their portfolios as collateral to
raise money to lend to business and private individuals, creating what
is called a liquidity crisis. A liquidity crisis is like an individual
who is sitting on real estate worth $10 million, but doesn't have
enough money to make this month's car payment. So ... the Fed, along
with several other major central banks, has agreed to take up to $200
billion in these high quality agency securities, and either swap them
for US Treasury securities, or make loans to banks that put up those
agency securities as collateral. They are doing this to avoid a panic
driven liquidity crisis which could cascade and dry up the source of
loan money that fuels the US economy.

I know that probably doesn't answer all of your questions, but I hope
it helps.

Jeff

I guess the unknown is whether or not the securities used for
collateral are solid or not.

That is the problem. While, what Jean Paul said about FNMA, FHLMC, and
Freddie Mac buying sub-prime loans is untrue, the worry is that the
sub-prime fiasco could bleed over into conforming loans made with
larger down payments to financially sound borrowers, which would
adversely impact FNMA & Co. That worry, hopefully unfounded, has
contributed to the current liquidity crisis. Since, in the event of
trouble, the government will likely wind up having to bail out those
agencies, it makes sense for the Fed to act now to (hopefully) avert a
crisis and ultimately a federal bailout.

You need to get your glasses fixed. I didn't say anything about FNMA, FHLMC
or FMAC buying sp loans.

Your hatred is consuming you.

JP

You didn't mention FNMA and Freddie Mac because you are too ill
informed to know what they are, but whether or not you realized it,
that is exactly what you were referring to when you spewed your
ignorant bile.

******************************************************

"The collateral are the sub-prime mortgages themselves. So, if the
mortgagee cannot pay the re-negotiated rate of the lender, then the
lender keeps the taxpayer financed Federal Reserve loan and you and I
(the taxpayers) get to tell everyone that we own a house somewhere
even though we cannot live in it. I would guess that the Federal
Reserve will then create a new government entity to sell these houses
at fire-sale prices....probably back to the banks that financed them
in the first place...only to then sell them again to prospective
homebuyers. The banks will make money on this one coming and going.
And the taxpayer will get left with the bill."

.... Jean Paul, Re: Fed again takes steps to boost market liquidity
.

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