Volcker Says Fed's Bear Loan Stretches Legal Power

[gulfcoastliberal]

Source: Bloomberg.com

April 8 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker questioned the central bank's decision to rescue Bear Stearns Cos. with a $29 billion loan, saying it was at ``the very edge'' of its legal authority.

``The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices,'' Volcker said in a speech to the Economic Club of New York.

snip

Volcker, the Fed chairman from 1979 to 1987, had implicit criticism for U.S. regulators and market participants who allowed ``excesses of subprime mortgages'' to spread into ``the mother of all crises.'' The Fed's Bear Stearns loan was unusual, he said.

``What appears to be in substance a direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time-honored central bank mantra in time of crisis: lend freely at high rates against good collateral; test it to the point of no return,'' he said.

Read more: http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aCGyDXfClFvI

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Meanwhile, people losing their jobs and homes continue suffering as congress passes yet more tax breaks for big business and the fed hands out free money to wall st.

[bilgewaterbill]

1. Bear could've been left to fail but the resulting panic would've taken down

a dozen other banks. The Bear "bailout" seems to have stopped the run on the banks, at least temporarily. Had it not been done, the damage to the economy could have been disastrous.

[TwixVoy]

2. It is all artificial

The bail out used money that was not real. One of the primary reasons we are in this mess is due to the fact wages have not kept up with prices for at least two decades. This has resulted in people compensating for a lack of increased wages with credit. The problem is in order to keep this house of cards from falling apart the banks had to lend more and more money. Credit cards, HELOCs, sub-prime mortgages, just about a loan for anything REGARDLESS of rather or not that money could be paid back. REGARDLESS of how long it took. 50 year mortgage? Sure no problem! Credit card debt for 20 years? Why not! Let's extend your credit line too!

The problems is there is too much debt, too much consumption. This country does not produce anywhere near as much as it consumes. We are in major trouble here.

How many more Bears will have to be bailed out before the house of cards falls apart?

[bilgewaterbill]

3. There was no money used. Only a guarantee in case the assumed debt fails.

The points you make are valid. We ARE in major trouble here! I'm not sure that the Fed can "bailout" ANY more Bears. I do know that there will be another one. Soon. And then we'll know.

[Tansy_Gold]

5. Question is, how can that "assumed debt" NOT fail?

It's junk. The mortgage-backed securities are far from secure, and nothing is being done to make them secure. The builders and developers and mortgage brokers -- who already made out like bandits when building and selling and financing these homes -- are going to get even more from the government, but the people who are supposed to pay those mortgages will get nothing. So how are the debts not going to fail?

Am I just stupid here or something?

Besides, the sub-prime mortgage crisis, though real, appears to be more of a distraction than anything else. The real problem is the $516 TRILLION in derivatives that no one is talking about, except, of course,



Tansy Gold

[InkAddict]

9. Passing the "magic" bucks back and forth...

with itself(?) in desperation...a new giant "rival" in corrpution emerges...ARE YOU IN THE (AMERICAN)ZONE versus ARE YOU IN THE (NWO) RESERVE ZONES?

http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/index.cfm

[Sadie5]

6. TwixVoy

You are right on most points except where you say wages have not risen in 2 decades. from 92-2000 wages kept pace with more jobs than workers to fill them. Under Bill Clinton our economy soared. The consequences of having a c- coke snorting little boy who dreamed of someday being president. If we are not careful we might get another one.

[soothsayer]

7. Money IS debt. That's practically the only way money is made anymore.

That's why there can be $500 trillion worth of money in circulation but only $50 trillion in GDP globally. That extra stuff is all phoney money built on the giant ponzi scheme of debt, which only works when you can keep selling debt to more and more places (which is why the NWO needs a global economy). Derivatives are just a big fat form of gambling, trying to make money off of nothing but speculation about whether other people are going to make money or not. It's all very odd and if you stop to think about it, it will make you really nervous.

[DCKit]

4. How will they learn if there are no consequences? n/t

[Gman]

8. That's what I screamed about when this happened...

that the fed had assumed the liability for $29 billion in subprime mortgages. THAT is an outrage, but normal for this "administration".

[Deny and Shred]

10. $29 B for Bear Stearns. The FED is lending at the Discount Window, too.

$50 Bil each of the last two months, up from $20 B in Dec. The FED is accepting derivatives, CDO, etc. as collateral at the window too. Basically just buying out their bad decisions.
The FED isn't done either. Expect $50 B or more per month. Taxpayers own derivatives that they hope to sell eventually, investment banks get cash today.
The FED stopped publishing the M3, (money supply) so even economists will have to guess wildly at the true inflation rate.

[Supersedeas]

11. questionable legal decisions -- no, not the Bushies