Busted: Bankers and The Global Economy

May 4, 2008

The Federal Reserve Panic Button

With so little wiggle room in the interest rate, we’ve mused about what the Fed intends to do to encourage the market and to free up liquidity. The Fed has come up with another quick fix. It’s called expanding the Term Auction Facility to $75 billion per auction. Now, the Fed is allowing an expansion of what it will receive as collateral for the TAF. The Fed will now accept securitized “junk” bonds based on the subprime and alt-a mortgage loans in exchange for bank credit to expand banking liquidity. This action is hoped to take additional pressures from the liquidity-pressed commercial bankers in the U.S.

Interestingly, similar measures are being adopted at other international “fellow central banks”. (more…)

March 13, 2008

Massive Bank Failures Still Expected

In the past year there have been four bank failures. The chairman of the Federal Deposit Insurance Corp and banking industry experts foresee many bank failures down the road. “Regulators are bracing for 100-200 bank failures over the next 12-24 months,” says Jaret Seiberg, an analyst with the financial services firm, the Stanford Group. Expected loan losses, the deteriorating housing market and the credit squeeze are blamed for the drop in bank profits.

All this bad news is expected despite the recent moves by the Fed to bolster the banking system to the tune of $200 billion in 28 days cycles through September. The Fed has also just increased the Fed TAF auction to $100 billion for the indefinite future through September. This is a huge hunk of credit to temporarily sustain the banking economy. Perhaps the move by the Fed is simply a grand tactic to forestall any problems through the election if bank failures are still expected on a grand scale. Is the reaction of the Federal Reserve overkill or admission of the seriousness of the economic situation facing the U.S. and other parts of the economic world? What do you think? Don’t hold back.

March 12, 2008

Good News for Bankers and Investors

Filed under: banking, central bank, federal reserve, government, investment — Tags: , , , , , , , , — digitaleconomy @ 9:01 pm

In an unprecedented move yesterday, the Fed was credited for the best day in the U.S. stock market for quite some time. The Federal Reserve is in the minds of bankers, economists and government officials, bankrolling the largest economic bailout of all time. The bankers are elated because it would seem that the payback for their impropriety will be completely dismissed and forgotten forever. Whether this is true or not, the financial services world feels very good and the market once again has a spring in its step.

The bailout is an amazing volume of temporary bank financing for bad securities, bonds and bank instruments. This provision is known as the Term Securities Lending Facility or TSLF, operating much like the TAF. The TAF auction is being extended from $50 billion to $100 billion. This should enable the Fed to cover a huge volume of problem bank securities and liquidity shortfalls while virtually eliminating the problem of future bank failures. The FDIC reported the closure of a small bank this week. The huge Federal Reserve system protection should protect the banking system from failure and the dreaded loss of confidence that would result from extended failures in banking. This appears to be a win-win situation for the commercial banking and financial community and would seem to allow for a large margin of safety for the U.S. economy. This is especially important politics for desperate politicians in an election year. Payback for the illusion may be more difficult.

The biggest news was apparently overlooked completely. The credit that the federal reserve was placing on the table with its sister central banks was noted by the Fed as the “G-10 central banks” . What does this move of solidarity show? Are the central bank branches just a loose, separately-owned confederation of financial corporations or something more? Does it matter? Whether it matters is a question that you will have to ask yourself. Rest assured that these new processes are being created for multiple reasons and shows the truly dangerous economic state in place. This time, enormous creativity has been brought to the table.

The good news is that this website covers that central banking corporate angle extensively that the world ignores. If you are curious, have a look around in the topics section. As usual, there will continue to be more exploration and discovery to come as more details are revealed.

February 26, 2008

Another Unprecedented Reserve Auction

Filed under: banking, credit, federal reserve — Tags: , , , , — digitaleconomy @ 12:17 pm

Federal Reserve Bank Commercial Banking Auction

On February 25, the Fed’s Reserve Auction hit a new landmark for commercial banks applying for help. On $30 billion available, $67.958 billion in credit requests were made, a 126% demand level over available short-term funds. 72 bidding banks participated, up from 66 bidding commercial banks on February 11. This reflects a true level of stress in the banking market. This also does not account for any funding refused because of improper collateral levels since the Fed requires sufficient collateral for short-term funding.

Previous TAF Auctions:
02/11/08 – $30 billion – $58.400 billion – 66 bidding banks
01/28/08 – $30 billion – $37.452 billion – 52 bidding banks
01/14/08 – $30 billion – $55.526 billion – 56 bidding banks
12/20/07 – $20 billion – $57.664 billion – 73 bidding banks
12/17/07 – $20 billion – $61.553 billion – 93 bidding banks

Release Date: December 21, 2007
The Federal Reserve intends to conduct biweekly Term Auction Facility (TAF) auctions for as long as necessary to address elevated pressures in short-term funding markets. The Board of Governors will announce the sizes of the January 14 and January 28 TAF auctions at noon on January 4.

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