Fed aid in financial crisis went beyond U.S. banks to industry, foreign firms

Discussion in 'Economy' started by Trajan, Dec 2, 2010.

  1. Trajan
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    Trajan conscientia mille testes

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    there are several things very wrong here.

    First- why are we just now discovering the depth of the issue?
    Second- why did the entities on the receiving end of this massive largess not make it know to what extent they were being given succor by the gov., some of these co's have media interests.
    Third-, this is not gov.'s place. This is FARRRR beyond what we had been told and what our expectations for future bailouts have been set up as.
    Forth -The gov.should not be in the job of picking winners and losers, it distorts the market, blows away and up expectations of investors and frankly at the end of the day if some co.has based their entire life/ability to operate a few quarters sans commercial paper,oh well, their bus. model stinks and to bad for them.

    and I won't even go into the foreign banking interest loans etc...I am sure others will get into that.

    So here we are; Verizon cannot go under becasue they are to "big to fail"? Or Harley Davidson?...dude, Toyota?... ..really?


    By Jia Lynn Yang, Neil Irwin and David S. Hilzenrath
    Washington Post Staff Writers
    Thursday, December 2, 2010; 12:15 AM

    The financial crisis stretched even farther across the economy than many had realized, as new disclosures show the Federal Reserve rushed trillions of dollars in emergency aid not just to Wall Street but also to motorcycle makers, telecom firms and foreign-owned banks in 2008 and 2009.

    The Fed's efforts to prop up the financial sector reached across a broad spectrum of the economy, benefiting stalwarts of American industry including General Electric and Caterpillar and household-name companies such as Verizon, Harley-Davidson and Toyota. The central bank's aid programs also supported U.S. subsidiaries of banks based in East Asia, Europe and Canada while rescuing money-market mutual funds held by millions of Americans.

    The biggest users of the Fed lending programs were some of the world's largest banks, including Citigroup, Bank of America, Goldman Sachs, Swiss-based UBS and Britain's Barclays, according to more than 21,000 loan records released Wednesday under new financial regulatory legislation.

    snip-

    "The American people are finally learning the incredible and jaw-dropping details of the Fed's multitrillion-dollar bailout of Wall Street and corporate America," said Sen. Bernard Sanders (I-Vt.), a longtime Fed critic whose provision in the Wall Street regulatory overhaul required the new disclosures. "Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations. As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions."


    snip-

    By the fall of 2008, credit had frozen across the financial system, including the commercial paper market. The Fed then purchased commercial paper issued by GE 12 times for a total of $16 billion. It bought paper from Harley-Davidson 33 times, for a total of $2.3 billion. It picked up debt issued by Verizon twice, totaling $1.5 billion.


    snip

    heres a whopper-

    The data also demonstrate how the Fed, in its scramble to keep the financial system afloat, eventually lowered its standards for the kind of collateral it allowed participating banks to post. From Citigroup, for instance, it accepted $156 million in triple-C collateral or lower - grades that indicate that the assets carried the greatest risk of default.

    rest at-
    Fed aid in financial crisis went beyond U.S. banks to industry, foreign firms
     
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    Last edited: Dec 2, 2010
  2. loosecannon
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    loosecannon Senior Member

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    Amen. This sounds exactly like Mussolini' fascism.
     
  3. B. Kidd
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    B. Kidd Gold Member

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    If Citi had been allowed to fail, 100 governments around the world would have been figuring out how to pay their employees.
     
  4. Toro
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    Toro Diamond Member

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    I haven't read it all, so I may be presumptuous, but as I understand it, much of what was "bailed out" was really the Fed backstopping commercial paper, which was held en mass by money market funds. Commercial paper is 30-90 day loans, generally issued by investment grade companies, and held by money market funds and accounts. It is used to fund working capital. Working capital is used to pay wages, accounts payable, etc. It is the grease that keeps the corporate engine running.

    When paper is issued by companies such as Harley and Toyota, it is held in money market accounts. The Fed backstopped this paper to backstop the money market. They did this after the Reserve Fund broke the broke and its net asset value fell below a dollar.

    Investors generally regard money markets as cash, the safest of the safe. If there is even a slightest whiff of a dollar being worth less than a dollar, investors will panic, even if the panic is completely unwarranted. I've seen it happen right up close. They will withdraw first and ask questions later.

    Given the runs we were seeing in the markets at the time, a run on money market funds could have collapsed both the financial system and the economy IMHO. It is easy to criticize in hindsight, but I don't think most people realize how close we were to an absolute collapse, IMHO. Some of the stories I have heard since the Financial Crisis just reinforces my view. It would have been truly scary.

    So I back what the Fed did, though I hated that they had to do it, because there is no doubt in my mind that the economy would have been far, far worse had they not.
     
  5. loosecannon
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    loosecannon Senior Member

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    with all due respect, Toro, that sounds to me like dangerous idealism. The same forces that brought us to the "brink" of collapse merely survived to destroy us another day.

    I think it must be possible to survive a complete collapse of fictional or virtual financial order if that order becomes so dysfunctional as to self trigger it's own collapse.

    Keep in mind that not one outside agent or incident led to that brink, no 9/11 event, no world war, no comet striking the gulf of Mexico, no real world trigger at all.

    A broken system just needed to fail so it could be replaced or repaired. But we kept it alive with duct tape and wire so it can break down later, when we will be even more exposed to risk.

    And what you are doing is reinforcing the dangerous meme that a few self regulating scary banks are too big to fail, so they must be treated like national security assets and protected at all costs.

    Madness. And a recipe for bigger failures in the future.
     
  6. B. Kidd
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    B. Kidd Gold Member

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    Not allowed to pos rep you for this, but succintly and accurately stated......:clap2:.
     
  7. Toro
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    Toro Diamond Member

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    LC

    I get the criticism and I don't necessarily disagree. But IMO, we were on the verge of another Great Depression, and the outcome would have almost certainly been catastrophic. In that, this recession is a picnic compared to what could have been. This is IMHO hard realism and as far from idealism as possible.
     
  8. william the wie
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    william the wie Gold Member

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    That excuse for repeating the mistakes of the past only bigger and badder only ensures an even larger future crash.
     
  9. loosecannon
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    loosecannon Senior Member

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    Toro, the Great Depression was fully curable as long as you were willing to reorder the financial world in so doing.

    But instead our leaders uphold the "free market" and the financial superstructure that frames the "free market", while they allow the masses to mire in intractible periods of unemployment and impoverishment without relief.

    This is backwards. The only excuse for having a capitalist economy is to serve people at large, not to serve the concentrations of capital at the direct expense of people at large.

    Banks, even big banks are supposed to fail. Capitalism and the FDIC demand it.

    What we are doing is what Mussolini described as fascism, or the marriage of government and business.
     
  10. Trajan
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    Trajan conscientia mille testes

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    well we all agree it appears, ( to an extent), it was necessary but it sux....hummm..

    my issue with that is as William alludes, the new bill just written, encodes this bailout mentality (and as a by product screws folks over be demanding larger margins in areas etc. that were not at risk either)...in short the new bill sux and we are on the hook down the road to play the same game....and these folks know it, there by we have solved exactly NOTHING.

    so again, verizon? I say nope sorry we have half a dozen telecom conglomerates...sorry..next case?
     

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