Comments on: Chart of the day, Morgan Stanley bailout edition A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Feynman Wed, 30 Nov 2011 16:20:10 +0000 “The Fed didn’t blink: it kept on lending, as much as it could, to any bank which needed the money, because, in a crisis, that’s its job.”

The United State’s central bank, “the Fed”, has a very strong motive for lending to its member banks as much as they want to borrow. The member banks own all of the common stock shares of the Fed! And the member banks receive an enviable 5% fixed annual dividend rate on their investment. And they essentially choose all the Fed directors, although they play a charade of recommending their choices to the U.S. President first. No wonder the Fed “kept on lending, as much as it could, to any bank which needed the money”.

By: economicgps Wed, 30 Nov 2011 16:13:21 +0000 Chris,

You correctly state the original charter of the US Fed but the practical application of the Fed is much more broad. The Fed along with Goldman and the revolving door of the US TSY effectively drive the economy like a Soviet central planning office picking corporate winners and small business losers regardless of impact on national competitiveness. All major economic decisions are approved or vetoed by the Fed due to the magnitude of the Feds influence.

Small innovative US Businesses are like Soviet infantry at Stalingrad. No support except for “blocking forces” that shoot small businesses that buckle under bank created short term credit fluctuations. The banks then blame small business and join Republican forces that suggest they are simply thinning the herd of less fit organizations. Small business is by nature less fit and apparently Too Small to Succeed under the banker class tyranny.

The American Private Management Team behind the Fed have configured a “Too Big to Fail and Too Small to Succeed” economic regime on par with Joesph Stalin. This is one troop that isn’t dead yet.

Take some liberal arts night courses and read your history MBAs. National planning is outside your scope of management and math skills.

73% Republican 27% Democratic Responsibility

By: woohooman Tue, 29 Nov 2011 03:25:21 +0000 The US FEDERAL RESERVE BANK is a foreign criminal private enterprise that hijacked this country in 1913 and has since orchestrated the incredible deficits, inflation, deflation and destruction of the middle class.

The deceitful marketing has been designed to present a facade of legitimacy. Its buildings look like federal institutions. But it is no more federal than federal express. Every fiat dollar the FED creates out of thin air is a debt that we pay interest on to the private criminal FED mafia owners.

These FED mafia owners control all of our branches of our government and the media whores that hide the scam from public view. The FED IS THE MILITARY INDUSTRIAL COMPLEX that sucks wealth from the private economy through the promotion, and perpetuation of continuous WARS and the borrowing costs that are like blood to a vampire. The FED feeds on the misery of others.

It is unelected, unaccountable, unrepentant and IS the enemy of a free society. Ladies and gentlemen WE DON’T CONTROL OUR MONEY so WE ARE SLAVES TO A HOSTILE FOREIGN TYRANT.

By: Auros Tue, 29 Nov 2011 01:34:51 +0000 albertsun: No, you have it exactly backwards. In order to affect the economy, a central bank needs to be able to persuade people that it will consistently achieve whatever target it declares it wants to achieve. See this old Krugman item: tml

Notice in particular the footnote explaining how a central bank can, in theory, help get out of a liquidity trap by “credibly promising to be irresponsible” (i.e. setting a higher inflation target that is promsed to last for at least a few years beyond when the liquidity trap is escaped, and persuading people that they REALLY WILL maintain higher inflation over that period).

Here’s a more recent take on the topic:  /18/credibility-and-monetary-policy-in- a-liquidity-trap-wonkish/

By: TFF Tue, 29 Nov 2011 01:32:18 +0000 Danny_Black, the concept of “market rate” presumes a market. I’ll believe you that the market at that time was thoroughly frozen — but this is effectively an admission that the Fed loan was on terms that the private market was unwilling to match.

I don’t personally have a problem with that, as long as it doesn’t involve the Fed taking risk (they are pretty good about that) and is only used in a liquidity crunch. Doesn’t do anybody any good to let all the banks fail (and they would all have failed if the Fed hadn’t stepped in).

By: chris9059 Tue, 29 Nov 2011 00:08:49 +0000 Danny Black
In your response to TFF you yourself acknowledge that MS could not borrow in the private sector “.. there was difficulty borrowing at ANY rate…”.

If MS couldn’t borrow at ANY rate in the private markets access to Fed lending at ANY rate is a rate lower then the market rate. How is this not a subsidy to MS?

By: Danny_Black Mon, 28 Nov 2011 23:10:05 +0000 TFF also with some of the Fed programs the dealers are REQUIRED to participate. The most famous case of this being when GS was the only person to bid at an auction and got a loan for 0.1%( possibly 0.01%) which was turned into a huge fake scandal at bloomberg and the cut and pasters.

By: Danny_Black Mon, 28 Nov 2011 23:06:30 +0000 TFF, remember this was a timeframe when t-bills were yielding a negative amount so normal economics went out the window. Why borrow from the Fed, a) they could roll the debt and you were guaranteed to be able to borrow vs hunting around in the market, b) the market at the time was freezing up, so there was difficulty borrowing at ANY rate and c) those who were lending were taking treasuries and the like as collateral.

What i suspect the dimwits at Bloomberg have done is compare the rate to the Fed funds rate or Libor which is an UNCOLLATERALISED rate.

By: TFF Mon, 28 Nov 2011 21:56:25 +0000 “How were the rates “below-market”? Show me instances of where MS borrowed from the FED with particular collateral with particular haircuts were the rate was lower than the deal they would have got in the private market.”

Danny_Black, why would MS borrow from the Fed at a HIGHER rate than they could have had elsewhere? That suggestion makes no sense whatsoever.

My guess is that in the uncertain environment at that time, the private market was demanding larger haircuts than MS could afford to give. The Fed offered them better terms, thus they took the Fed’s deal.

I’m open to alternative explanations, however, as long as they don’t involve MS voluntarily preferring higher-rate borrowing to lower-rate borrowing.

By: Danny_Black Mon, 28 Nov 2011 20:18:33 +0000 SteveHamlin, it wasn’t secret. As has been pointed out in the numerous other times these “journalists” have written essentially the same article, these programmes were publically announced AT THE TIME with details of the amounts borrowed. Anyone who claims those programmes their purpose or the amounts or rates is or was a secret is a flat out liar. The first time these “journalists” wrote this BS, they might just be too ignorant to know what they are talking about but it has been corrected, there is simply no way they do not know that these “secret” loans were in fact not secret at all. Not only that but as a reader of this blog you should be aware of this too.

How were the rates “below-market”? Show me instances of where MS borrowed from the FED with particular collateral with particular haircuts were the rate was lower than the deal they would have got in the private market. We went through this when Bloomberg first posted this BS – where incidentally they showed what dishonest lying scum they were by adding up all the overnight loans rolled over and claiming it was one big loan – and even if we assumed the collateral was worth nothing, that during that period LIBOR stayed at its upper bound and the interest charged to MS stayed at it lower bound then the “subsidy” to MS was less than a couple of hundred million and that is an absolute UPPER bound. If someone did the calculations more precisely I would happy bet it comes in at a few million tops.

johnhhaskell, as someone who wouldnt spot the truth if it nutted him, I am not surprised you find this rehash of old stories convincing.

Strych09, see above. One case where the same loan under the same conditions was lower than the market. Just one.