Your email address:

Powered by FeedBlitz

Or add to your news reader: Add to My Yahoo! Add to Google

Tuesday, February 19, 2008

Give it to the Fed. They'll eat anything.

This article is troubling.

According to the Financial Times, banks have quietly borrowed 50 billion dollars from the Federal Reserve window, securing the loans with the collateral of their choosing. Obviously we're talking about CDOs and other subprime debt. Effectively the Fed is easing the strain on the banking system by providing cash up front for any old scrap of paper with a value scribbled on it. By loaning money to banks against bad loans, the Fed is pretty much increasing leverage in the system at a time when the exact opposite should be happening.

In my opinion, this amounts to a bailout without congressional approval and another sign of leakage within the system. The problems won't go away like this. They'll just linger. If you're a bank, you can get quick and ready financing at attractive rates for garbage you can't sell. If the government decided they were going to bail out the subprime market, it would be open to public debate and ultimately that decision would fall on the representatives of the collective populus -- congress. By providing liquidity to banks with illiquid securities as collateral, the Fed has gone over all of our heads. It's not good.

In related news, my ATM fees at banks have doubled in recent weeks. Chase is charging $3 for withdrawals if you don't have an account there -- it was $2 a couple of months ago. More leaks.

Mortgage rates are at record lows.

It sounds more like a credit bonanza than a credit crisis. Something about it just doesn't sit right with me. Maybe I'll go into a ton of debt since there are no consequences.

No comments:

Blog Archive