Why should just banks have all the fun? Former FDIC Chair Sheila Bair proposes EVERYONE get access to the Fed window for free loans and 0% money.

Her gleeful take:

“Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)

Think of what we can do with all that money. We can pay off our underwater mortgages and replenish our retirement accounts without spending one day schlepping into the office. With a few quick keystrokes, we’ll be golden for the next 10 years.”

I had no idea Shelia Bair had such a wonderfully wicked sense of humor!

>

Source:
Fix income inequality with $10 million loans for everyone!
Sheila Bair
Washington Post April 13, 2012  
http://www.washingtonpost.com/opinions/fix-income-inequality-with-10-million-loans-for-everyone/2012/04/13/gIQATUQAFT_story.html

Category: Bailouts, Credit, Humor

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

73 Responses to “Fed Access for All !”

  1. MikeinMass says:

    No offense to BR or Sheila, but BFD! The rest of us have been saying this for a few years now.

  2. Kelja says:

    And what makes you think she’s joking?

  3. tagyoureit says:

    Love the punchline at the end of the article! It reminds me of Calvin and Hobbes’ Club G.R.O.S.S (Get Rid Of Slimy girlS).

  4. KidDynamite says:

    Barry – it’s funny that you read this piece and thought “I had no idea Shelia Bair had such a wonderfully wicked sense of humor!” because I read this piece and thought “wow, I had no idea Sheila Bair was so willing to just make up nonsense.”

    I’m referring to the claim that is the basis for the rest of her piece – the part where she writes:

    “For several years now, the Fed has been making money available to the financial sector at near-zero interest rates. Big banks and hedge funds, among others, have taken this cheap money and invested it in securities with high yields. This type of profit-making, called the “carry trade,” has been enormously profitable for them.”

    That is demonstrably false. And it only takes one chart to show that it’s false:

    http://research.stlouisfed.org/fred2/series/EXCRESNS

    That’s almost $1.6 TRILLION in excess reserves sitting at the Fed earning 25 bps, NOT being used to buy securities with high yields. In fact, the reason we haven’t had a booming rip roaring recovery is precisely because banks are NOT taking the kind of risks that that the Fed really deep down inside kinda wants them to: they’re NOT lending to anyone and everyone.

    Of course, we did try that whole “give everyone a loan” thing already – it resulted in the housing bubble. I woulda thought that Bair would remember that.

    note: Europe’s LTRO is different – they are doing what Bair is talking about!

  5. tyaresun says:

    Sheila Bair for President. Heck, Sheila Bair for President for life!!!!!

  6. Frilton Miedman says:

    YEAH!!! ZIRP credit cards!!!…WoooHooooo!!!!

    Kidding aside, she has a point…why are banks entitled to my tax money at 0%, only to lend it back to me at 4% or more, then take the proceeds for use in bribing my government to keep it that way?

    It’s not like the Fed couldn’t collect on defaults, the IRS can hunt you down for life.

  7. ReadtoOrder says:

    Seriously, someone tells me What’s the evolution picture and consequences if free access really happens?

  8. Frilton Miedman says:

    KidDynamite Says:
    April 13th, 2012 at 4:45 pm
    “Of course, we did try that whole “give everyone a loan” thing already – it resulted in the housing bubble. I woulda thought that Bair would remember that.”

    KD, answer a question for me -

    If the banks had only made the loans without securitiizing them to CDO’s, how badly do you suppose the crisis in 08′s would have been?

    I’m not necessarily making the argument , but asking if, without securitization via CDO’s, the crisis would have been substantially smaller, or if we’d have had one at all?

    I don’t think the Fed blindly flinging money at 0% to everyone with a pulse is a smart idea, but then, where the bubble this past decade is the argument against it….what if it hadn’t been securitized?

    I betcha there’s a solution in Sheila’s humor that lies somewhere between.

  9. Sechel says:

    Sheila Bair is a rock star. That’s all I can say.

  10. “…Kidding aside, she has a point…why are banks entitled to my tax money at 0%, only to lend it back to me at 4% or more, then take the proceeds for use in bribing my government to keep it that way?…”

    Frilton,

    always *nice to be able to count on you for the “Fact-free”-angle..

    “…why are banks entitled to my tax money at 0%…”

    are you referring the FedRes’ ZIRP?

    if so, could you show the connection between the FedRes, and ‘your’ “tax money”?

    “…take the proceeds for use in bribing my government…”

    also, with that *Pearl..

    how, exactly, do you view the, current, instantiation of the USGov as ‘your Government’?

    esp. in light of http://search.yippy.com/search?query=Black+Box+Voting+Vote+Fraud&tb=sitesearch-all&v%3Aproject=clusty at the min. ?

    http://www.thefreedictionary.com/instantiation

  11. KidDynamite says:

    Fritlon Miedman: sure – much smaller. But that’s not what I was talking about – that’s the financial crisis. I was just talking about the housing bubble – the unsustainable bubble (and inevitable bust) in housing prices that resulted from easy credit. Of course, the two are not unrelated – that bust caused the financial crisis, in part due to the content of your comment. (aside: note that in a synthetic CDO you don’t even need to securitize anything – you just need two parties willing to make opposite bets on the performance: one wins, one loses)

    I think you might really mean to be asking about MBS – mortgage backed securities – which allowed the banks to get the loans off their books and crank out more of them. That was a huge problem, but MBS aren’t inherently evil or anything.

    I was going to write more in my comment about how another huge problem in the financial crisis was the whole maturity mismatch – which is another reason that banks are not currently borrowing overnight funds from the Fed and plowing them into 10 year Greek bonds. They already tried that – it didn’t work. In fact, it killed more than one of them. (not Greek bonds specifically, obviously)

  12. scapescu says:

    There is no difference between the banks and the fed. The banks are giving themselves money. When you have the power to create money, the fundamental rule is not to dissipate too much of this money in the economy because you will create inflation negatively affecting the center of your power ( those money created out of thin air will have less value). That,s why in spite of the huge increasing of the money supply, I do not think big inflation will be a problem. Why? Because no “household”, except the banks, will get the free money (for what?!, to spend it? God forbid!)
    Sometimes a joke tells more than a fancy book.

  13. Moe says:

    Sarcasm is so misunderstood.

  14. mysterious eggs says:

    At least we know how the inflation targets will be met now.

  15. Sechel says:

    Barry, I could just picture some economist arguing Sheila’ ssuggestion would be inflationary where as giving it to the banks extends credit to the economy.

  16. louiswi says:

    If I’ve told you once, I have told you one trillion times; Stop stretching the truth!!!

  17. whskyjack says:

    I found the Blair piece very funny but I think the reaction in the comments may top it on the humor scale.

    Thanks for the entertainment after a rough day.

  18. dead hobo says:

    5 stars. 10 out of 10. Things I wish I said. Needs to be carved in stone and immortalized.

  19. ssc says:

    As this is loan, so when we died, the principle (I assume) will go back to the fed, and then “we will break even and not cost the taxpayer a penny” and also saved the world !!!

  20. Frilton Miedman says:

    KD, thank you for the reply,

    Yes, CDO’s are a packaged category of MBS’s, but ANY asset that’s comprised of 90% high risk liar loans is risky, regardless if you label it MBS, CDO,”Timberwolf”,”toxic” or “legacy”. or rate it “quadruple super top secret triple A” ( a lipstick on a pig type thing)

    My point is that we were absolutely swindled by the bank/ratings company relationship in conjunction with an unregulated mortgage industry.

    They were unable to spew untold numbers crappy loans for the sole purpose of making “triple A” assets, fully expecting defaults that they’d be able to collect on counter-positions as “market-makers”, not to mention the countles other sectors /indices that were also firectionally affected that “prop” desks were able to make massive profits on.

    Earnings reports showing profitable days every single day in prop trading at TBTF’s, no coincidence.

    We wouldn’t be left speculating over whether it was Fed policy or GSE’s that caused the crisis, there would have been no crisis, at least not the proportion we got.

    The idea I was entertaining, though intended as humor by Bair, what if the Fed did do something to the effect of direct consumer financing at dirt (or zero) rates?

    And no, it’s not that simple, which is why I say “somewhere in between”.

    She was obviously being snide, but then, use of Fed money in that context would certainly be far more productive than what it has been used for since 2009….and, with the IRS as the collector acting as they do with student loans by not allowing bankruptcy…it seems like there’s an idea in there – somewhere.

    ~~~~

    Mark Hoffer…Huh? Are you sardonically in agreement?

    If not… do you smell any fumes?…if so, open the windows, call the Fire Department and get out!!

  21. louis says:

    Why is sarcasm so hard for some to get and why do they find it annoying?

  22. philipat says:

    Why should the TBTF Banks have a monopoly on free money AND socialised losses? We don’t need these institutionalised casinos to be given free momey and then lever that free money up X times. Better for the Bank of Mum and Dad to do it themselves. I always liked Sheila Bair but now I like her even more. She makes a very pertinent point regarding the financial system and the Fed.

  23. mortyschell says:

    No wonder Little Timmy Geithner had her fired!

  24. Frilton,

    if your ‘Line of Inquiry’ were unique, this guy.. http://fallacyfiles.org/ ..would, certainly, open a sub-domain with your Name on it..

    but, sadly, no..
    ~~

    speaking of which, if you ‘upped your Game’, you might be able to better something like http://www.sadlyno.com/
    ~~

    though, to leave you with a ‘Clue’..

    with..”…My point is that we were absolutely swindled by the bank/ratings company relationship in conjunction with an unregulated mortgage industry…”

    Your constructions are too, _____, Broad, to begin with..

    “…we were absolutely swindled…”

    Who is this ‘We’ you are, so casually, speaking of?

    IOW, Speak for your own, _______, Self..

    you ask..”… do you smell any fumes?…”

    you should wonder..

    if more “Economists”/”Analysts” bothered ‘snorting Exhaust Fumes’, instead of Laser Toner, maybe, the Con, that was pulled off, would have been aborted..

    though, alas..~

  25. DW auto says:

    Isn’t this going to get Bair in trouble with our Fed Mandarins, or even the less relevant pres and congress? Bair must now want to distance herself from the role she played in the crisis.

  26. victorberry says:

    If I got all the zeroes right, it would only cost the Fed $3 quadrillion and that’s for every man, woman, and child in the USA. Seriously, the Fed missed its chance in late 2008 and early 2009 to offer each and every homeowner a zero percent interest loan to pay off their mortgage. As a result, the banks would have cleaner books and the homeowners would have more money to participate in our consumer economy. And if the homeowner defaulted, the Fed would own a house (hard asset) instead of a possibly empty MBS.

  27. Market Panic says:

    This is brilliant use of sarcasm to underline how corrupt our society is.

    Why only banksters like Jamie Dimon (JPM) and Lloyd Blankfein (Goldman), or crony capitalists like Jeff Immelt (GE) can borrow taxpayer money at zero percent interest from Bernanke (Fed) and to pay themselves multimillion dollar bonuses?!

    Jamie Dimon has been awarded a $23 million bonus this year for borrowing from the Fed taxpayer money at zero interest to speculate in stocks, mark up commodity prices, and to “invest” in treasuries (anyone can do his job when the system is so rigged to benefit the banksters, so if President Obama really wants to be fair, he should give everybody in America the same $23 million bonus or the same access to the Fed as Jamie Dimon gets).

  28. Doofus says:

    I’m really excited! This is the best American financial innovation since liar loans and pick-a-payment mortgages. I can’t wait to get my super PAC started to help candidates who support this important cause. I think I will call my proposal the “Get Rid of Employment and Education Directive.”

    “Get Rid of Employment and Education Directive” – GREED

  29. Joe Friday says:

    KidDynamite,

    You’re conflating two different procedures.

    Bair is quite correct that “Big banks and hedge funds, among others” have been borrowing money at the Fed Discount Window at essentially zero interest, and investing with high returns and low taxation.

    You are also correct that there is a lot of money sitting in reserve at the Fed earning a high rate of interest, but that goes back to after the crash to a Fed plan to inject liquidity into the banking system.

    The funds were given to the banks to shore-up their reserves as a substitute for their portfolio of toxic real estate assets which were worth a great deal less than the 100% they were being carried on their books, but ALL of the money has actually remained on account at the Fed in accounts in the name of each of the respective institutions. As an incentive to the backs to leave the funds where they are, the Fed is paying a higher rate of return.

    It’s a three-fer. It keeps the banks reserves in proportion so they are not technically insolvent, it creates liquidity, and it is not inflationary because the monies are not out in the economy. The only problem, as you pointed out, instead of freeing-up money and providing needed loans, the banks have instead decided to just further enrich themselves.

    You and Bair are referencing two different events.

  30. Frilton Miedman says:

    victorberry Says:
    April 13th, 2012 at 8:52 pm
    “…. the Fed missed its chance in late 2008 and early 2009 to offer each and every homeowner a zero percent interest loan to pay off their mortgage. As a result, the banks would have cleaner books and the homeowners would have more money to participate in our consumer economy. ….”

    This is exactly the type of idea I was suggesting.

    Now we’re in a pickle, the end of the rope for monetary policy, further QE will induce inflation and we’ve seen barely any worthwhile increase in employment/wages to offset it, and after giving away the farm to the TBTF’s they in turn are using that buying power to lobby D.C. to get rid of the rules intended to stop the continued extraction of wealth.

    It’s time for a revisit of Teddy Roosevelt’s “New Nationalism”, monetary’s between a rock and a hard place..

    ___

    To.MarkHoff, I reread your post, and holy cow, you weren’t kidding.

    I’m grateful knowing I can count on you for jump-the-gun erroneous insult when the chance presents itself, very impressive.

    Tarp and the bailouts were taxpayer money given to the banks for near nothing, we ate the risk to save them, they thanked us by using that money for the D.C. lobby, prop/futures manipulation, dark pools, HFT and record breaking bonuses for themselves….not without jacking fee’s and rates, atop the “fraudclosure”/robosigning scandal for good measure.

    That aside,
    Regardless how “Independent” the Fed is, any way you reshuffle the wealth transfer/debt created by the TBTF CDO rope-a-dope scam, taxpayers pay the consequence in lost net worth, consumer/government debt and cuts to government spending that results in job loss and slowed consumption.

  31. b_thunder says:

    There must have been no love lost between Sheila Bair and the Fed! Can you imagine what kind of discussions the FDIC and the Fed chiefs were having when “negotiating” whether or not to allow JPMorgan re-institute dividends?

    The organizers of 99% movement should consider making someone the “face” of the movement – Sheila Bair is a perfect candidate. At the very least that Wall St. shill Erin Burnett won’t be able to tell her with straight face that the Gov’t made money from TARP.

  32. Joe Friday says:

    Frilton Miedman,

    Now we’re in a pickle, the end of the rope for monetary policy, further QE will induce inflation…

    Indeed.

    You WANT to “induce inflation” into a downward deflationary spiral.

    I can’t imagine QE3 not happening, short of the national GDP exploding, which there is no demand to accomplish.

  33. Through the Looking Glass says:

    Why not just take the money back from the banks to accomplish the same thing as we wont need them because it will take them from TBTF to too big to exist!

    Yea baby! Chop them up into thousands of independent neighborhood banks and credit unions.

  34. beaufou says:

    Wow, somebody actually just figured out that shit made out of nothing can be shared by the masses. Not gonna work, it’s too complicated.

  35. Simon says:

    Why exactly do people think she is joking? Isn’t this just what Helicopter Ben has been threatening to do all along? In the wonderland that is economics this sort of thing may have just the consiquences that are so desired. If it was done covertly and the banks and hedge funds got no tip off it would have some wonderful effects. It would wipe out all student loans. It would pay off everyone’s mortgage. It would make all people approximately as wealthy as everyone else. Presuming that everyone just had 10m dropped in an account with their social security number on it. To be fair it would have to be gradiated somewhat. I means babies should probably only get a couple of million, children 3 or 4. Teens 7 or 8. Only people over 18 should get the full 1o million. It would wipe out the US foreign debt. It would create a massive economic stimulus. Give it a year and then wipe ten digits off the currency value and it’s all done and dusted. You’d just have a few crumpy foreign governments and mad old people. It would be great.

  36. Petey Wheatstraw says:

    Bair’s comment, while perhaps sarcastic, has, at its heart, a nugget of pure, unadulterated honesty. How does one become qualified to borrow at low enough interest and sufficient volume to take advantage of free money arbitrage/carry trade? Is it a combination of taking the appropriate courses of study at an Ivy League university and knowing or blowing the right people forever thereafter?

    Those folks — whether of the natural of new fangled corporate variety — we have allowed this type of access have certainly managed to fuck-up the one car funeral procession that is enabled by such privilege. Far worse, I suspect, than if the free monies were granted by lottery.

    BR: The chart linked to by KidDynamite @ 4:45 pm, speaks volumes (of cash). I might be mistaken, but isn’t that where our missing monetary velocity/recovery is hiding?

    The whole dishonest charade comes down to this: Why would we let the average Joe fuck over the system, when we can let our cronies do it? Why do we let the Fed choose who gets to screw the fractional reserve goat when it’s not the Fed’s goat in the first place?

  37. KidDynamite says:

    @JoeFriday –

    let’s take it step by step:

    1) hedge funds have positively not been borrowing money from the Fed – they are not allowed to.

    2) banks did borrow from the discount window for a period of time during the crisis. That is certainly no longer rampant – they borrow from each other, not from the Fed

    3) yes – the liquidity that the Fed has injected into the system is sitting in accounts at the Fed as EXCESS reserves – it has positively not been used as Bair suggests to buy risky assets, which was precisely my point.

    which brings me to point 4:

    @PeteyWhitsraw wrote:

    “I might be mistaken, but isn’t that where our missing monetary velocity/recovery is hiding?”

    yes – precisely. the banks are NOT lending in the manner in which Bair suggests (ie, when the banks buy risky assets, that is lending!). The money is just sitting there at the Fed.

  38. rd says:

    @KidDynamite:

    I beg to differ on hedge funds not borrowing from the Fed.

    The whole point of the Volcker rule that the banks have been fighting against is to prevent banks from being like hedge funds. The Fed is loaning money to the banks that then can operate large proprietary trading arms with the financial backing of their TBTF Fed-backed status.

    I think the equity and commodity markets today and over the past decade would look very different if the TBTF institutions were not permitted to play in them.

  39. KidDynamite says:

    @rd – I’m going to try to make this my last reply (that never works) because this entire “debate” is based on gross mispconceptions held by the public, which is precisely why I’m so annoyed that Bair would try to further those misconceptions.

    1) here is the data on discount window borrowings: it’s basically nil

    http://research.stlouisfed.org/fred2/graph/?chart_type=bar&s1id=DISCBORR

    so there’s the proof: banks are not borrowing from The Fed

    2) Your point, I think is that banks ARE hedge funds – ok, sure, but then you need to go to my earlier graph:

    http://research.stlouisfed.org/fred2/series/EXCRESNS

    their excess reserves are sitting there at the Fed. they are positively NOT being used as Bair alleges.

    the Fed is NOT “loaning money to the banks.” The banks LOAN MONEY TO EACH OTHER, and to other businesses. Sometimes they try to borrow from each other at low rates and make speculative loans (ie, to Greece, Portugal) at much higher rates. The problem with our economy right now is precisely that banks are NOT making such speculative loans – as PeteyWheatsraw noted at the end of his comment.

    good luck.
    -KD

  40. Greg0658 says:

    KidD I looked at the “to the moon chart” .. your 8:25am makes sence too .. sooo
    just who is making the fauxCash that blew this __ more than a bubble – blew up the SITUATION
    or is this a figment of my imagination .. I read in the thread MEW CDO CDS in the building buildings goldrush

    or is it the rise in Corporate stocks and their convince’g on the populace they are the kings so give us more .. hense buy on credit for you shall be rewarded when cash’g out and have no fear

    and I like the general thought stir from Sheila .. the bankers are living well – the job may have headaches when in the public forum – but the workcations look fine

  41. wally says:

    There is a solid argument, of course, for low interest rates in a recession. They provide liquidity, provide stimulus, etc., etc.
    There is an equally interesting opposite point: interest is the pressure, the voltage, if you will, that forces money to move and to be put to useful purposes. Without it, money sits.

  42. Greg0658 says:

    ps – missed a big one I think .. or is it the rise in CREDIT to police ourselves and the world into a Lovely World State :-)

  43. Greg0658 says:

    hate it when my eyes seperate from my nose & mouth :-/

  44. Petey Wheatstraw says:

    KidDynamite:

    Something is absolutely foul in this picture. Being that he banks are/were arguably insolvent prior to the Fed’s foray into QE, one has to ask where all of the excess reserves on the Fed’s balance sheet came from, if not the Fed itself?

    The commonly held and promoted (but, I believe, false) belief that private capital is the only capital, and that the Fed is merely the conduit to a money supply based on said capital, begs the question: exactly where did that capital originate? What private store of capital was used to replenish the banks after their ruinous credit-fest?

    National and global “wealth” would appear to be the most extensive criminal fraud ever perpetuated — the perpetuation being advanced by the byzantine structure and elaborate but completely false economic theories which keep the common person from understanding just how political the entire system is, at its heart. Central banking makes organized religion look positively honest by comparison.

    I believe we are currently in the Mother of All Bubbles — a bubble that encompasses everything financial: banking, stocks, bonds, currencies, wages, prices, and commodities. The whole shooting match. When it bursts, it will burst politically. The shockwave alone will make heads explode.

    I see lots of complacency, even here at TBP. Not a good sign.

  45. James Cameron says:

    I believe we are currently in the Mother of All Bubbles — a bubble that encompasses everything financial: banking, stocks, bonds, currencies, wages, prices, and commodities. The whole shooting match. When it bursts, it will burst politically. The shockwave alone will make heads explode.

    Jesus, this is how I start out my Saturday morning. :)

  46. Petey Wheatstraw says:

    Sorry, JC.

    Everybody else is probably right, and I’m wrong. If I’m a permabear, I’ll be right, eventually — right? Just seems to me that for the magnitude of the serial bubble bursts we’ve seen, this rally from the depths was far too easy.

  47. James Cameron says:

    I’m being facetious . . . for all I know you’re right! :)

  48. Bill Wilson says:

    I found a Huffington Post article from about a year ago. It talks about the use of bailout funds by TBTF banks. The gist of the article is that TBTF banks got money from the FED, downsized their holdings of MBS, and increased their holdings of Treasuries. It’s accompanied by a memorandum from the Congressional Research Service that shows the changes in bank holdings over time. If you look at Bank of America, you can see that as they got money from the FED, their holdings of Treasuries went up, and their holdings of MBS went down.

    Does that mean that Bank of America decided in their boardroom to dump MBS onto the FED in exchange for low interest loans, then use those loans to buy Treasuries for a nice spread. No it doesn’t. Does it mean that’s what happened. Yes, I think it’s exactly what happened.

    Bank of America was allowed to borrow cheaply from the FED. They used that money to buy Treasuries, because lending money to anyone other than the Federal Government when your balance sheet is a mess in the middle of a recession would be nutty.

    This brings me back to Sheila Bair’s point. Is she accurate is saying that banks are are borrowing a dollar from the FED and using that exact dollar to buy Treasuries? There’s no proof of that. Did banks increase their holdings of treasuries while they increased their borrowing from the FED. Yes, they did.

    So, what was the point of the bank bailout? I’d argue, it was a failure. The fact that banks bought government debt instead of lending is the proof. Banks should have been forced to write down debt, instead of allowed to extend and pretend. We’d be in better shape now, and it didn’t do anything for us at the time. Other than preserve the status quo.

    If we were going to pursue a strategy of mindlessly bailing people out, maybe we should have bailed out the average person. Not the greedy irresponsible a**hats who caused the mess, and should have know better. That’s the point that Sheila Bair’s ridiculous joke is making.

    http://www.huffingtonpost.com/2011/04/26/fed-lending-helped-wall-street_n_853884.html

  49. Petey,

    don’t be so quick to concede, with “…Everybody else is probably right…”

    this..”…I see lots of complacency, even here at TBP. Not a good sign…”, alone, is worthwhile..

    and, this..”…I believe we are currently in the Mother of All Bubbles — a bubble that encompasses everything financial: banking, stocks, bonds, currencies, wages, prices, and commodities. The whole shooting match. When it bursts, it will burst politically. The shockwave alone will make heads explode…”

    too, I believe, is unassailable (with/by Logic)..

    or, differently, there isn’t a cogent Argument that could begin to prove otherwise..
    ~~
    IOW..

    Leave it to Petey, He’s Correct.

  50. Through the Looking Glass says:

    We cannot solve our problems with the same thinking we used when we created them.

    Albert Einstein

    Anyone that doesn’t want to reshuffle the deck should just move to the country where they hide their money . You go Sheila!

  51. Frilton Miedman says:

    Joe Friday Says:
    April 14th, 2012 at 12:10 am
    “Frilton Miedman,
    “Now we’re in a pickle, the end of the rope for monetary policy, further QE will induce inflation…”
    Indeed.
    You WANT to “induce inflation” into a downward deflationary spiral.
    I can’t imagine QE3 not happening, short of the national GDP exploding, which there is no demand to accomplish.”

    Have heart, Mark Hoffer has informed us this won’t involve taxpayer money.

  52. Joe Friday says:

    KidDynamite,

    1) hedge funds have positively not been borrowing money from the Fed – they are not allowed to.

    You’re overlooking how many of the non-banks have become “banks” (or an affiliate has) since the crash so they can belly-up to the Discount Window for FREE MONEY.

    2) banks did borrow from the discount window for a period of time during the crisis. That is certainly no longer rampant – they borrow from each other, not from the Fed

    That would be news to the Fed.

    3) yes – the liquidity that the Fed has injected into the system is sitting in accounts at the Fed as EXCESS reserves – it has positively not been used as Bair suggests to buy risky assets, which was precisely my point.

    Except it wasn’t Bair’s point. She wasn’t referencing the reserves sitting in the accounts at the Fed with the respective name of each institution on them. She was referencing borrowing money at the Discount Window for essentially zero interest. Once again. you and Bair are referring to two DIFFERENT events.

  53. Joe Friday says:

    Petey Wheatstraw,

    I might be mistaken, but isn’t that where our missing monetary velocity/recovery is hiding?

    No.

    Unlike the funds they lend out at the Discount Window, the monies in the accounts I mentioned, shown as reserves for the banking system, was CREATED OUT OF THIN AIR. Just as all the monies used to purchase all the treasury securities in the QEs was CREATED OUT OF THIN AIR. It neither adds to the federal debt or creates more treasury securities. When the national economy finally recovers (which MAY happen in our lifetimes) as the QEs are unwound and the treasuries sold, and the reserves given to the banks are slowly withdrawn to be replaced by their own hopefully solid portfolios of assets, all of those monies returned to the Fed will be DESTROYED.

    (It never happened)

  54. Petey Wheatstraw says:

    Joe:

    i understand the money was pulled out of the ether, what I’m wondering is why it’s apparently sitting on the Fed’s books as $1.6T of excess reserves. The money was created to be put to use. If Bair’s facetious plan was put to use, this money would be in circulation — hopefully canceling consumer/mortgagee debt or otherwise productively.

    Maybe I’m misunderstanding the chart.

  55. Joe Friday says:

    Petey Wheatstraw,

    i understand the money was pulled out of the ether, what I’m wondering is why it’s apparently sitting on the Fed’s books as $1.6T of excess reserves. The money was created to be put to use.

    No, it wasn’t. It was only created to facilitate lending.

    As I explained upthread, after the crash the assets the banks were utilizing as their reserve, so that they could loan out multiples of, were suddenly only worth say 35% of the 100% they had them on their books. If you’re a bank that could only loan out $9 for every $1 you have in reserve (just as an example), you now have $9 loaned out for every $.35 cents in reserve. You are now insolvent. The gang from the FDIC shows up one Friday and on Monday there is a new sign above the bank.

    So the Fed said, we will give you the $1 for every $9 you have loaned out to utilize as your reserve, and you will not count your toxic portfolio as part of your reserves. However, the funds will be deposited into an account at the Fed with the bank’s name on it, so you can carry it on your books as an asset.

    As an incentive to have the banks leave the funds there and not draw them out, the Fed is paying them a higher interest rate than they can get anywhere else.

    As I posted, It was a three-fer. It kept the banks reserves in proportion so they were not technically insolvent, it (was supposed to) create liquidity, and it is not inflationary because the monies are not out in the economy.

    Gotta go for now.

  56. KidDynamite says:

    @JoeFriday –

    Bair cannot possibly be referring to discount window borrowing, because discount window borrowing is de-minimus! It’s currently less than $10B. I posted the link above already. here it is again:

    http://research.stlouisfed.org/fred2/series/DISCBORR

    Banks do not borrow from the discount window and plow the money into risky assets. Banks borrow from the discount window when they are up a creek without a paddle.

  57. louis says:

    So was Marx right?

  58. Joe Friday says:

    KidDynamite,

    * Bair was definitely not referring to the reserve monies, as not a penny of that has budged since it was deposited into those accounts.

    * That leaves two possibilities that I can think of:

    A) The non-bank ‘banks’ are not covered by the “Depository Institutions” metric in the chart you cited, so the chart is only displaying what the banks had borrowed.

    B) The Fed is loaning out money to these non-bank ‘banks’ by way of some other scheme instead of the Discount Window.

    It is happening.

  59. KidDynamite says:

    @JoeFriday –

    there’s a third possibility:

    C) Bair is full of crap, making stuff up

    which was again, precisely my point.

    She’s probably running for office or something, so she’ll do what most politicians do and make up some populist pandering nonsense.

    I would expect Truth Seekers like Barry to call her out on it.

  60. Joe Friday says:

    KidDynamite,

    there’s a third possibility: C) Bair is full of crap, making stuff up

    Oh no, as I posted, it IS happening.

    Just look at all the investment banks that became “banks” (or some affiliate did) just so they could qualify to borrow money from the Fed at essentially zero interest.

    I would expect Truth Seekers like Barry to call her out on it.

    I didn’t see anything in her article that was not rooted in the “truth”.

  61. KidDynamite says:

    JoeFriday –

    ok. I give up. You just keep saying that banks are borrowing from the discount window, yet there is zero evidence that is an accurate statement.

    banks do not “borrow from the Fed” unless they have an issue. they borrow from each other.

    now, they DID borrow from the Fed during the crisis – because they were totally f’d and needed the liquidity. They certainly did not plow that money into high yield bets either – they used it to try to survive. but that’s a different topic.

    good luck.

  62. Joe Friday says:

    KidDynamite,

    You’re conflating the “banks” with the non-bank ‘banks’.

    If you’re not grasping that basic point, I dunno what to tell ya.

  63. KidDynamite says:

    Joe –

    hedge funds do not borrow from the Federal Reserve Discount Window. This is not a matter of opinion.

  64. AHodge says:

    i get excited just being near her
    she also actually knows how to do resolutions workouts and writedowns and bankruptcy
    i recommend –again–her farewall speech

  65. AHodge says:

    kid you are a tool and dont know shit-it aint about the discount window
    everybody big can borrow meaning repo at near zero
    if you have 50 mio net worth privately, your private banker will cheer you on and lend you the money witha few bps
    this is where you say oops never mind

  66. AHodge says:

    repo and any other collateralized borrowing to be precise. the zero interest funding–not just discount– gets passed on and offered widely, basically to the rich.

  67. DeDude says:

    The Fed’s purchases of treasuries were supposed to take care of the outrage of banks getting free money and using it to buy treasuries. But I think I heard that the Fed actually cannot purchase the treasuries directly from the government, so there is some kind of private sector middle man that is harvesting a huge profit for shuffling papers. If it isn’t free money one way then it will be free money another way.

  68. KidDynamite says:

    Ahodge – I’m not sure why I’m still bothering to “argue” with people who provide no data at all to back up their claims – especially those who call me a tool and say I don’t know sh1t, but since Barry Ritholtz likes data to back up arguments, I’ll throw you a chart that shows the repos held by the Fed and make an example out of you:

    http://research.stlouisfed.org/fred2/series/REPT?cid=32218

    that’s right: exactly zero.

    so to recap: banks are not borrowing from the discount window. that’s a fact. Banks are not repo-ing their positions with the Fed – that’s a fact. Of course, there’s no reason why they would be repoing positions right now – they have massive excess reserve balances.

  69. AHodge says:

    im not sure why you bother either, why dont you stop
    excuse my factual namecalling, but in the nearly hopless interest of this socratic dialogue goin anywhere
    here is the fed weekly sheet on all major short term borrowing rates for big corps and others incl
    commercial paper eurodollars, swaps etc
    your assignment
    see if you can find any of thses rates as high as 1% thats ONE %
    for anything less than five years?
    and explain why you discount window babbling has anything to do with this?
    http://www.federalreserve.gov/releases/h15/current/

  70. KidDynamite says:

    Yes, I am well aware that the yield curve is flat, near zero, out for a lengthy time period.

    and you and everyone else, ESPECIALLY Sheila Bair, should be aware that this does not mean that banks borrow from the Federal Reserve, which they positively do not do, currently (although they did during the crisis).

    banks do not borrow from the Fed at 0% and invest in risky assets at higher rates. It’s flat out false, and the Public needs to understand that, not be misled with populist nonsense. That’s why I don’t stop.

    yes – everyone also knows that the Fed has pumped the System full of liquidity and kept rates low. No one seems to be complaining when they get a record low 4% 30 year mortgage, right?

    hasta la pasta. I have nothing more to add on this.

  71. Frilton Miedman says:

    KidDynamite Says:
    April 15th, 2012 at 6:44 pm

    “…banks do not “borrow from the Fed” unless they have an issue. they borrow from each other.

    now, they DID borrow from the Fed during the crisis – because they were totally f’d and needed the liquidity. They certainly did not plow that money into high yield bets either – they used it to try to survive. but that’s a different topic. ”

    ~~~

    If the banks didn’t use Fed money for riskier/prop trading, and while they had that money that they’d have been F’d without, prop trading reported daily gains almost 100% of the time…then what money were they using?

    Record breaking bonuses isn’t my definition of “trying to survive”.

    I can lend an ear to the obvious statement that Sheila Bair was using a degree of hyperbole, the statement was made in sardonic jest, but I disagree that she was being blatantly dishonest in concept.

    The TBTF’s, for all intents and purposes, own us for the reasons stated in Sheila’s sarcasm, they sneeze and we make massive sacrifices to secure them above and beyond what any branch of government would do for any of us.

    I know the term “socialized losses with privatized gains” is getting old, but ultimately it’s the truth, Jefferson’s biggest fear in debate with Hamilton is realized.

  72. Joe Friday says:

    KidDynamite,

    hedge funds do not borrow from the Federal Reserve Discount Window.

    Of course not, but many investment banks and/or hedge funds created affiliates that DO.

    You’re being far too literal.

  73. Joe Friday says:

    DeDude,

    The Fed’s purchases of treasuries were supposed to take care of the outrage of banks getting free money and using it to buy treasuries. But I think I heard that the Fed actually cannot purchase the treasuries directly from the government

    That is merely the Fed purchasing treasuries in the open market like everyone else.

    If they purchased them “directly from the government”, they would open themselves up to complaints of an ‘unfair advantage’ or it not being an ‘arms length transaction’ or who knows what other conspiracy theories.