Busted: Bankers and The Global Economy

March 21, 2008

Wall Street Investment Bankers Use Fed

wall-street.jpgBig Wall Street investment companies have been taking advantage of the Federal Reserve’s unprecedented recent offer to secure emergency loans. The new lending measures are part of a major effort by the Fed and the Bush Administration to guarantee the free flow of liquidity to keep order in the financial markets (see video for March 20). The Bush Administration is not taking any chances on any possibility of future failures. The likes of Goldman Sachs and Lehman are using the the funding. Wall Street banking firms have averaged $13.4 billion in daily borrowing since Monday from the Fed. In emergency meetings on Sunday with Treasury Secretary Henry Paulson, the Fed agreed to allow Wall Street investment houses to secure emergency loans directly from the central bank (see March 16 post). This new measure created a way for “financially strapped” investment firms to have regular access to a source of short-term cash at standard Fed interest rates. Investment bankers can also bid at Fed auctions in the immediate future. The Fed will allow investment firms to borrow up to $200 billion in Treasury securities by using risky investments on hand as collateral. This move could cost U.S. taxpayers if care is not exercised. However, it is clear that the Federal Reserve and the Bush Administration do not expect to fail in any measure regardless of the cost.

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