Comments on: How the government rebuilt household balance sheets http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Danny_Black http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/comment-page-1/#comment-22333 Tue, 28 Dec 2010 14:00:10 +0000 http://blogs.reuters.com/felix-salmon/?p=6685#comment-22333 The CP market almost completely dried up when the Reserve Fund broke the buck after LEH died. The Asset backed commercial paper market was under stress since 2007. The innovation in the PDCF was the type of collateral accepted and that it was available to primary dealers.

By the way the CP market drying up is something that seems to get very little coverage as to how close the US was to the brink. If that had failed then US companies would be running a cash-in cash-out business. No invoice financing, no terms and conditions for payments, no salaries unless the cash was to hand. For all the fuss people are making that is what Paulson, Geithner and Bernanke brought the US back from under extreme pressure in Sept and Oct 2008.

PS no apology needed all here to learn…

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By: TFF http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/comment-page-1/#comment-22329 Tue, 28 Dec 2010 13:30:39 +0000 http://blogs.reuters.com/felix-salmon/?p=6685#comment-22329 Okay, so the discount window is only available to depository institutions. The PDCF, in contrast, sounds a little like the overnight funding market (commercial paper?) that got Lehman in trouble when it dried up?

I greatly appreciate your efforts to educate, and apologize for being slow.

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/comment-page-1/#comment-22327 Tue, 28 Dec 2010 12:43:58 +0000 http://blogs.reuters.com/felix-salmon/?p=6685#comment-22327 From the feds site:

“How is this different from discount window lending to depository institutions?
This differs from discount window lending to ***depository*** institutions in a number of ways. Currently, the primary credit facility offers overnight as well as term funding for up to 90 calendar days at the primary credit rate secured by discount window collateral to eligible ***depository**** institutions. The PDCF, by contrast, is an overnight facility that will be available to primary dealers (rather than depository institutions).” At the time virtually all of the investment banks were not depository institutions – important exceptions being Citi and JPMC.

Also the collateral for the discount window is much much much more restrictive.

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By: TFF http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/comment-page-1/#comment-22322 Tue, 28 Dec 2010 12:18:15 +0000 http://blogs.reuters.com/felix-salmon/?p=6685#comment-22322 Yes, the PDCF loans were collateralised.

How was that different from what the Fed has always done? Are the usual overnight loans NOT collateralised? Or did PDCF extend them to more institutions?

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/comment-page-1/#comment-22313 Tue, 28 Dec 2010 04:32:12 +0000 http://blogs.reuters.com/felix-salmon/?p=6685#comment-22313 TFF, one minor but important point about the PDCF is that the loans were collateralised.

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/comment-page-1/#comment-22260 Mon, 27 Dec 2010 15:47:34 +0000 http://blogs.reuters.com/felix-salmon/?p=6685#comment-22260 I know the english language isn’t your strong point.

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By: Danny_Black http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/comment-page-1/#comment-22259 Mon, 27 Dec 2010 15:47:14 +0000 http://blogs.reuters.com/felix-salmon/?p=6685#comment-22259 hsvkitty, may want to go back and read what the reporters were saying including the original article.

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By: TFF http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/comment-page-1/#comment-22242 Fri, 24 Dec 2010 15:16:06 +0000 http://blogs.reuters.com/felix-salmon/?p=6685#comment-22242 TBTF = “too big too fail”. During the crisis stage in 2008, first Bear Stearns and then Lehman were allowed to fail. After that, the Fed stepped in with some pretty dramatic actions to save AIG, C, and others from going under. The belief was that those companies were too large, and too strongly interconnected with the rest, to be allowed to fail — the failure of even one would bring down the whole deck of cards.

TARP = “Troubled Asset Relief Program”. I think the idea at first was to relieve the banks of some of their “toxic assets”, protecting their balance sheet from further losses. That idea stalled because nobody was able to figure out a sensible price at which to trade the assets (or perhaps because it was politically unpalatable to do so). Thus the major component of TARP was the distribution of a few hundred billion dollars of cash to the banks (who issued preferred stock in return). TARP was generally framed as loans and has mostly been repaid. In some cases those loans were converted to equity — which is being sold at a modest profit. Too early to close the book on TARP yet, but it seems certain that the Treasury’s loss on TARP will be very small in comparison to the trillions of dollars in fiscal stimulus that is being handed out to middle-class households across America. TARP was basically a band-aid, with the REAL bailout being the various tax cuts and spending programs, and the aggressively low interest rates that the Fed is maintaining.

PDCF = “Primary Dealer Credit Facility”. Overnight loans from the Fed to the banks, for the purpose of keeping liquidity high and keeping short-term interest rates low. I’m less familiar with the details of that, since this is the kind of stuff that the Fed does REGULARLY, but of course there have been no direct losses on this program.

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By: Francis_A http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/comment-page-1/#comment-22240 Fri, 24 Dec 2010 11:49:39 +0000 http://blogs.reuters.com/felix-salmon/?p=6685#comment-22240 This is a very interesting discussion I must say. Being that I am very new to the financial sector could somebody please explain to me what the following stands for TBTF, TARP, PDCF ????

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By: hsvkitty http://blogs.reuters.com/felix-salmon/2010/12/22/how-the-government-rebuilt-household-balance-sheets/comment-page-1/#comment-22237 Fri, 24 Dec 2010 04:53:52 +0000 http://blogs.reuters.com/felix-salmon/?p=6685#comment-22237 Danny black said:

“I know it is alot more work than just quoting the face value or adding up all the overnight loans and pretending they are one big loan but surely thats what intrepid financial reporters are meant to do, no?

Danny, no one but YOU said they were one big loan. We all, in spite of your insults, can read and divide.

Being you are from the UK and yet defend Goldman as though you worked for them…. let me guess…you did?

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