Probably the most important story today: Banks 'quietly' borrowing bilions from Federal Reserve

[debbierlus]

http://rawstory.com/news/2008/US_banks_quietly_borrow_massive_amounts_0219.html

NEW YORK (Reuters) - Banks in the United States have been quietly borrowing "massive amounts" from the U.S. Federal Reserve in recent weeks, using a new measure the Fed introduced two months ago to help ease the credit crunch, according to a report on the web site of The Financial Times.

The newspaper said the use of the Fed's Term Auction Facility (TAF), which allows banks to borrow at relatively attractive rates against a wide range of their assets, saw borrowing of nearly $50 billion of one-month funds from the Fed by mid-February.

The Financial Times said the move has sparked unease among some analysts about the stress developing in opaque corners of the U.S. banking system and the banks' growing reliance on indirect forms of government support.

The Financial Times:


--------------------------------------------------------------------------------

The use of the Fed’s Term Auction Facility, which allows banks to borrow at relatively attractive rates against a wider range of their assets than previously permitted, saw borrowing of nearly $50bn of one-month funds from the Fed by mid-February.

US officials say the trend shows that financial authorities have become far more adept at channelling liquidity into the banking system to alleviate financial stress, after failing to calm money markets last year.

However, the move has sparked unease among some analysts about the stress developing in opaque corners of the US banking system and the banks’ growing reliance on indirect forms of government support.

“The TAF ... allows the banks to borrow money against all sort of dodgy collateral,” says Christopher Wood, analyst at CLSA. “The banks are increasingly giving the Fed the garbage collateral nobody else wants to take ... suggests a perilous condition for America’s banking system.”

More at the the link at the top....

Remember, last year when they stopped telling us how much money they were actually printing....

[zonmoy]

1. setting up for the second great depression I see.

[Truth2Tell]

2. Amazing that we can manufacture

billions of dollars in one month to bail out corrupt banking interests...

but we can't provide health care or housing or food to all of our children.

[villager]

3. would it be easier to just go ahead an nationalize the banks now?

Since that's what's gonna have to happen after the Depression kicks in....

[tridim]

4. And oil went over $100/barrel today.

Joy.

[debbierlus]

5. Notice the bottom part of the story

On every news source...

If you read the whole thing, it state that they are borrowing against basically worthless assets....

This isn't getting much play (even on DU), but it SHOULD be...

[Ichingcarpenter]

7. Breaking news and a lot of comments and recommendations.

I have added up over a trillion in loans as reported since August
with no record of them ever paying them back.


http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3187654&mesg_id=3187654

[Speck Tater]

6. Look at the jump in this graph

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

[tridim]

8. That's unbelievable. nt

[Mike03]

9. The FR is the "lender of last resort"

So if financial institutions are borrowing from the Fed now, this is troubling.

Important and timely post.

K @ R

[w8liftinglady]

10. please forgive me-what is the impact of this-in layman's terms?

I wish I understood this better-thanks in advance

[ThomWV]

11. Someone Riddle Me This

Where is all this money they are borrowing going? Its not like they are out there making new loans and you can bet they aren't just piling it up in the lobby and standing around admiring the pile as the interest due ticks on.

[A HERETIC I AM]

12. It's 30 day money.

"borrowing of nearly $50bn of one-month funds from the Fed by mid-February."

30 day money.

This is not money from the Teasury Department nor is it coming from the Printing and Engraving building. It's coming from the Federal Reserve. And the Federal Reserve will get it back in 30 days plus interest.

[ThomWV]

13. If they are not making loans then is this just cash to keep the doors open?

Covering operating expenses?

[A HERETIC I AM]

17. They may very well be making loans with it.

If you could borrow money for 30 days at 3% annualized and lend it for 25 days at 5% or more, would you do such a thing?

Don't forget that there is a HUGE short term loan market, not only in this country but around the world. Your Money Market account at the bank is able to pay you the interest it does because they take your money and buy short term paper with it, usually nothing held longer than 60 days, some of it as short as 10 days, all of it paying some rate of interest or another. If you want to get a true idea of what a typical Money Market fund holds in it's portfolio, have a look at this annual report from Oppenheimer Funds on their Centennial Money Market Trust (the date on the report is June 30, 2007). Scroll down to page 6 for the first page of their "Statement of Investments". There is 7 pages describing the different notes they hold, the interest rates they pay and their duration. If you look through it carefully, you'll see they hold plenty of paper for only a single day and some for 30 days, etc.



I am by NO means a banking expert, so I shall refrain from sticking my foot in my mouth as best I can.

We have all heard the terms "Credit Crunch" and "Liquidity Crisis". If a Bank is temporarily illiquid, it can in part mean that they don't have the reserves on hand to satisfy demands for withdrawals. Short term loans like this satisfy that need.

If I own a company and I go to my bank and ask for a $10 mill loan and they say "We don't have it to loan you", THAT is a credit crunch.

"What do you mean you don't have it? You're a bank, for fucks sake!"

"Hang on a minute -(Auction attending Banker Guy just walks in from the Fed Auction waving a draft) OK, we can lend you the Ten Million but we need it back in 25 days"

"Deal"

Credit crunch averted.

Here is a short little press release from the Fed website talking about the Auction whose loans settled on 2/14 and come due 3/13;

http://www.federalreserve.gov/newsevents/press/monetary/20080212a.htm

[Ichingcarpenter]

15. Do we have any proof that they paid it back?

I never see any reports that they did, which doesn't mean they didn't.

[A HERETIC I AM]

16. You would have to ask the Fed....

But I would submit that if any bank that took short term money from the Fed defaulted, it would most definitely make news.

[Ichingcarpenter]

21. Yeah right .......Ask the Feds

:rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl: :rofl:

[backscatter712]

14. In other words...

the savings I've built up over the past couple years that in theory is enough to live off of for a few months or pay for a couple expensive emergencies will end up being barely enough to buy a Pepsi in the vending machine...

[annabanana]

18. Can this be called a "back-door bailout" of the Banks?

This IS what they're doing, isn't it?

[sarcasmo]

19. Kick so it stays on the main page. A very important story.

[NYC]

20. Good idea.

:hi:

[mia]

22. K & R Thanks for the post.

:kick:

[DemReadingDU]

23. evening kick

[BeHereNow]

24. Put this thread on the FRONT page! K&R~!!!!!!!!!!

BHN

[JDPriestly]

25. This is just astounding.

[dchill]

26. Everybody!

Buy canned food.

[dchill]

27. K-R-N-T

[goforit]

28. The FED is not necessarily a GOV'T agency, more like a private Rothchild bank

[Greyhound]

31. Not like a private bank, it is a private bank that is only nominally overseen

by the government. It is a monopoly institution that has the power to manipulate the economy toward its own ends. It is the cornerstone of the fascism that is revealing itself now.

[Kat45]

29. kick

[Greyhound]

30. $100B to the mortgage industry last month...

:kick: & R