FED Pulls $125 Billion from Circulation in Past 4 Days?

[G_j]

http://market-ticker.denninger.net/archives/590-FLASH-Fed-Speaking-Out-Both-Sides-Of-Mouth.html

[loudsue]

1. Holy shit! We ALL need to send this to congress and ask them that

same question. What kind of fucking Ponzi scheme are we taxpayers dealing with here??

They are fucking DRAINING our financial system!!!

[Karenina]

13. Indeed, they are!

[orleans]

2. hummmm...... n/t

[magellan]

3. WTF?

I want to hear what the bailout proponents have to say about THIS.

Also, wouldn't this bolster the flagging dollar? Less in circulation, value rises?

What kind of games are they playing??

[Hawkowl]

70. Exactly.

This is a GOOD thing. The Fed is working to offset inflation. Adding $700 Billion to the economy would be very inflationary in light of all the current debt. So, the Fed is going to choke off the money supply to fight inflation; the banks will be bailed out to free up credit; and the economy is going to take it in the ass with a two by four. If all goes according to plan, we should emerge from the recession in 2 - 3 years.

[Irish Girl]

4. lol ...

I'm sorry guys but this is what happens when we allow private international bankers (The Federal Reserve) control our currency. Is America tired of this gig yet?

The answer to everything lies in our Constitution. Our forefathers gave us, the people, the right to issue our own sound money. And by sound money, I'm not talking about this fiat currency bullshit where bankers create 'money' out of thin air. I'm patiently waiting for Americans to wake up and realize that once we abolish the Federal Reserve, the cancer will be removed from our country. Until then, these cockroaches will keep looting us dry.

Our Constitution *protects* us from this crap so why do we keep taking it?

[magellan]

6. Because not enough people know about it or understand it

They want to leave things to the people they elect. Obviously that isn't what the founders intended. But Americans have grown fat and lazy and treat politics like a spectator sport if they pay any attention at all.

Welcome to DU, btw. What's your take on this missing money?

[juajen]

52. I believe it's because we are generally uneducated.

They (the puppetmasters) have been de-educating us for many years. I can't believe what I hear is being or rather not being taught in our schools these days. We are being so dumbed down. It's horribly depressing. Knowledge is power, and they are making sure we don't have it.

We can get it, but it requires reading, you know old fashioned opening a book and reading it. We will never get our schools revitalized. The demoralization is great. I have two grandchildren who couldn't abide school and dropped out. They were never even debriefed as to why they left. This is unconscionable. Our teachers are, for the most part, boring and lack basic knowledge. You can actually teach art in high school with only one year of beginning painting. No design, drawing, sculpture or anything else. This plays out in almost every subject.

Reguired history courses in college are a joke, and without a knowledge of history, how do our young people even know what direction we should be headed in.

More and better education is absolutely necessary to turn this country around.

[Odin2005]

32. Loony Libertarian gold-bug BS

I suggest you you go read what John Maynard Keynes thought of the Gold Standard, a fan of it he was not.

[Usrename]

42. The American prophets:

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." - Thomas Jefferson

"All the perplexities, confusion and distress in America arise not from defects in their Constitution or Confederation, nor from want of honor or virtue, so much as downright ignorance of the nature of coin, credit, and circulation." - John Adams

[G_j]

47. prophetic alright! nt

[juajen]

53. Amen! Just what I was saying. Education. People do not understand

our monetary system, let alone our constitution. This should not be blamed on the computer generation; but our education system that has allowed itself to be hijacked by computers, instead of working in tandem with them to energize learning for our young people; and for older people who also need educating.

People, get behind real learning again, for the sake of your families and for the sake of our country. It wouldn't hurt to start paying good teachers what they are worth, also. Why should they starve to teach school? This country is et up with the dumbs!

[Usrename]

55. This kind of ignorance is very, very calculated.

The Federal Reserve is kept shrouded in mystery. I don't think it was ever even mentioned in any class I ever took.

[ForeignSpectator]

5. God, this video actually true?

http://video.google.com/videoplay?docid=-515319560256183936

[Irish Girl]

7. ahh..

Good for you Spectator. You've found one of the best historical documentaries and as you can see, some people right now are having a bit of fun at the expense of the Americans, who unfortunately are pretty clueless how their own financial system works. "The Money Masters" is investigative journalism at its finest. Now if only we could force EVERY American to watch that. I suggest reading through this link as well.

http://www.scoop.co.nz/stories/HL0809/S00328.htm">The Enduring Capitalist Conspiracy for World Government

"After a man has far more money than he possibly can spend for pleasures, what is left to excite him? For those with the ruling class mentality, the answer is power – raw power over other human beings. Money can buy such power only to a point, beyond that, politics is the sport, and world politics is the ultimate game.

The answer is simple. Deliberately create problems. And then offer only those solutions that result in the expansion of government. Create conditions so frightful at home and abroad, that the abandonment of personal liberties and national sovereignty, will appear as a reasonable price for a return to domestic tranquility and world peace."

I want to remind everyone to not be afraid. Fear is what feeds their schizoid power. But really, they are quite powerless when the smoke and mirrors is exposed. Our Constitution was an ingenious piece of work and protects us fully from this corruption.

What is the solution?

Keep the pressure on Congress : Absolutely NO BAILOUTS

And start insisting to Congress that the Federal Reserve be abolished. We don't need them. Once the American people take control of the money back as was intended by our forefathers, the international bankers are pretty much screwed.

[ForeignSpectator]

9. Yeah well, seems they kill off everyone who gets in their way, doesn't it?

Heard somewhere ( don't know where exactly ) that Kennedy wanted to abolish the Fed, too...?

Then fucking keep the pressure on Congress!!!

You heard of this : http://thinkprogress.org/2008/09/24/treasury-large-number/

You don't need to be an economic expert to see that that "bailout" is just a big pile of bs.

[Irish Girl]

10. yes

You're absolutely right. Kennedy wanted to give the power of issuing our currency away from the bankers and back to the people. Guess who else tried too? Abraham Lincoln.

But they can't fight an entire nation who is aware of what is really happening. The problem right now is that most Americans have been very deliberately dumbed down through a government run public educational system. Haven't you ever wondered why you weren't taught any type of finance in school, or any type of 'real world' math?

Mainstream media won't touch this issue with a ten foot pole either, although, trust me, Congress is very aware of what the truth is. But they need to cower to keep their jobs. There is hope however. I'm starting to see some more powerful people (such as Jim Rogers and Congressman Dr. Ron Paul) openly criticizing the Federal Reserve and demanding its abolishment. I only pray this trend will continue as all the deception becomes exposed.

And once the Average Joe's money starts disappearing, he's going to want answers real quick as to what the hell's going on.

[MadrasT]

40. Tell me again that this is true... just to make me feel better

"Congress is very aware of what the truth is."

[MadrasT]

41. "Kennedy wanted to give the power of issuing our currency away from the bankers...

and back to the people."

Assassination, meet motive.

[pokerfan]

51. So did Garfield and McKinley

Coincidence?

[BeHereNow]

20. WOW! WELCOME TO DU!!!

Tragedy and Hope should be mandatory reading for
anyone on DU who thinks the TC and CFR are "conspiracy theory."
Two party system my ASS.
Thanks for you VERY important link and posts!

BHN

[magellan]

8. Okay, I got the flash movie to work - guy's talking about draining the swamp

...to uncover dead bodies. What bank went belly up the day after this? WaMu.

They're playing games to get what they want.

NO BAILOUT.

[TexasObserver]

11. this is a largely contrived crisis

[druidity33]

12. that's HUGE!

How has no one noticed this?

:shrug:

[elehhhhna]

14. If the market has a liquidity crisis, why would you be intentionally draining reserves from the bank

that says it ALL

[G_j]

15. kick for further comment

[slipslidingaway]

16. Couple of links....TOMO's and POMO's

The Slosh Report shown in the link lists temporary operations, but the Fed also conducts permanent operations.

My very limited understanding is that both types of operations need to be taken into account, while they might be draining liquidity via temporary operations they could be adding liquidity via permanent operations.


The Slosh Report
http://www.gmtfo.com/RepoReader/OMOps.aspx

Using and interpreting the report
http://www.gmtfo.com/RepoReader/RepoHelp.aspx


See also...

http://www.ny.frb.org/markets/omo/dmm/temp.cfm

Temporary Open Market Operations

"To implement monetary policy, short-term repurchase and reverse repurchase agreements are used to temporarily affect the size of the Federal Reserve System's portfolio and influence day-to-day trading in the federal funds market."



http://www.ny.frb.org/markets/pomo/display/index.cfm

Permanent Open Market Operations

"Monetary policy can be implemented through outright purchases or sales of securities, which permanently changes the size of the Federal Reserve's System Open Market Account (SOMA) portfolio."



http://www.ny.frb.org/markets/pomo/display/index.cfm?showmore=1


Operation Date: 09/19/2008

Operation Type: Outright Agency Discount Note Purchase

Release Time: 2:15 PM

Close Time: 3:00 PM

Settlement Date: 09/22/2008

Total Par Amt Accepted (mlns) : $8,000

Total Par Amt Submitted (mlns) : $16,190



Operation Date: 09/23/2008

Operation Type: Outright Agency Discount Note Purchase

Release Time: 1:57 PM

Close Time: 2:30 PM

Settlement Date: 09/24/2008

Total Par Amt Accepted (mlns) : $2,000

Total Par Amt Submitted (mlns) : $4,063



Operation Date: 09/26/2008

Operation Type: Outright Agency Discount Note Purchase

Release Time: 2:08 PM

Close Time: 2:35 PM

Settlement Date: 09/29/2008

Total Par Amt Accepted (mlns) : $4,500

Total Par Amt Submitted (mlns) : $7,815

[lonestarnot]

19. Fuck this is confusing. A little knowledge is dangerous.

Unless you make a living doing this financial stuff, how is one to understand it. Crash coursing isn't working for me! :cry:

[slipslidingaway]

22. Confusing yes, but sometimes a little knowledge is helpful and

remember it builds over time.

:) :) :)

[lonestarnot]

30. Working on it!

:donut:

[dixiegrrrrl]

46. Here is some knowledge...

.".....part of the reason that the American public is so skeptical of the Bush administration’s bailout proposal:

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

http://thinkprogress.org/2008/09/24/treasury-large-number/

[slipslidingaway]

67. Thanks, it is amazing what people will buy :) n/t

[slipslidingaway]

25. Subject: "coup de whiskey" for the stock market

http://www.crystalball-forum.com/crystalball/sample.html

Repos are temporary operations and coupon passes are permanent operations.


Category: General Interest
Msg#: 37256
From: trotsky (heinz blasnik)
To: ALL
Date Posted: July 09, 2001 at 13:57:27
Subject: "coup de whiskey" for the stock market


"after adding over 17 billion dollars in repos and coupon passes last week, Fed adds yet another 7.25 billion today...while officially denied, these operations are indeed stock market support measures. since about three times more shares are traded than goods and services purchased in the US (dollar volume), the stock market has become by far the biggest part of economic activity. the term 'coup de whiskey for the stock market' was coined in the 1920's by a Fed governor to describe the Fed's repo operations. the one category of bank credit that has been rising the fastest this year is loans for securities purchases - the market is kept afloat by expanding credit further and further.

the above Fed operations are a heads-up for both bears and bulls: it means on the one hand, that short term market strength is to be expected - on the other hand, it also means that positions are being taken in the market that would not have been taken otherwise, i.e., artificial , purely credit based demand has been created, which is a longer term negative (as these positions will have to be unwound at some point in the future)."



The Cause of the Great Depression

http://ezinearticles.com/?The-Cause-of-the-Great-Depression&id=802865

"...That's right, the banks, starting with the Federal Reserve, caused a massive -- credit induced -- spending binge.

The Federal Reserve Governor at the time, Benjamin Strong, administered what he called "a little coup de whiskey to the stock market." He sold the dollar, purchased hefty amounts of Treasuries, and extended cheap credit to the masses.

Unfortunately this "little coup de whiskey" produced a drunkenly distorted economy. And when the bills came due the banks could not recover their loans. And depositors lost their savings forever.

Adolf Miller of the Federal Reserve Board testified to the Senate Banking Committee in 1931 that this episode constituted "the greatest and boldest operation ever undertaken by the Federal Reserve System and, in my judgment resulted in one of the most costly errors committed by it or any other banking system in the last 75 years."

The Great Depression -- including the high poverty and unemployment -- was just the painful hangover from the irresponsible banking practices of the roaring 20's..."

[Irish Girl]

44. I can't help but shake my head at the irony

"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again." - Ben Bernanke, Chairman of the Federal Reserve, during a speech to Milton Friedman (2004).

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm">Federal Reserve Board Speeches

Scroll to the very last paragraph of this speech and you'll see the above quoted text.

[slipslidingaway]

68. Thanks for that reminder and welcome to DU :) n/t

[Gin]

45. shrub said wall street got drunk..........now we get the hangover

[slipslidingaway]

69. Being a student of history, shrub must have been thinking of

that phrase when he made that comment.

:7

[Beam Me Up]

17. So . . . Are we saying this crisis is mostly being manufactured?

Not that there isn't insolvency in the system but that the dramatic urgency being put forward as needing immediate, drastic action to sustain liquidity is the result of a massive scam? Not that I would be surprised. I just don't understand these things. Color me clueless.

If this is the case, does Pelosi and Obama know? Sounds to me like EVERYONE is on the "emergency financial crisis" band wagon. It isn't a question that there is an urgent problem, only how much money we're going to throw at it, right?

[slipslidingaway]

28. Exacerbated might be a better word IMO...

TheRealNews: Once in a century rip-off

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=385&topic_id=198750&mesg_id=198750

[Beam Me Up]

29. Yes, I saw that yesterday, thanks. I'm becoming increasingly suspicious and

angry. IF there is no REAL need for this bailout, why is everyone, including Obama, acting as if there IS? What is going on here??

[slipslidingaway]

38. I'm angry as well because I do not think we are being told the

whole truth with respect to the part derivatives have played in this mess and as far as I know those will continue unregulated.

Also the implications of this bailout are not really being discussed, such as the effects on the purchasing power of the dollar and the cost of funding. I certainly do not want to pass this on to my children, while I believe something needs to be done, I do not think this quick fix is the answer.

[bertman]

50. Here's my take, Beam Me Up. Most of the time, we "average citizens" aren't exposed to the same

influences as our elected representatives. But, occasionally you get a whiff of it when you visit a metropolitan area such as New York, L.A., Atlanta, etc.

The whiff comes when you look at those skyscrapers. Very impressive edifices indeed. I have often imagined what it must look like to the inhabitants of those buildings, whether they live in a penthouse or they have an office on the upper floor(s). You see the world from a different perspective. Everyone looks like ants or bees buzzing around below.

So, when a fresh face comes to D.C. as a newly-elected representative of the people, he or she is new to the game. Although, many of them already have a pretty good idea how it's played based on previous jobs or family connections or whatever. Anyway, the higher up you go, you realize that ALL of those ants/bees are working for somebody. And it's not you they're working for. They are working for the people YOU are working for. The ones who financed your campaign. The ones you met at the fundraisers. And most of them you haven't even met. You've only met their representatives--high paid errand boys/girls.

This must be a humbling and illuminating experience. It must tell you in no uncertain terms that there are people and organizations who are FAR more powerful and knowledgeable about the workings of our planet and our country than you are. YOU are just a BIT PLAYER in this drama that has been unfolding for thousands of years of civilization and commerce and conquest and "progress".

But being even a Bit Player in the drama is intoxicating and addictive. You start to learn things that others don't know, and you meet some of the movers and shakers. And you are awed in the presence of such power and wealth. These movers and shakers are surrounded by some of the most intelligent, most learned, most competitive and most ruthless human beings on the planet. So, you start to question your relevance and your role in the drama. But they assure you that you are important and that YOU TOO can play an important part IF YOU'RE ONLY WILLING TO DO AS THEY SAY. And, if you fail to do as they say, you become irrelevant, unelectable, maybe even dead if you're especially smart, persistent, arrogant, or just dangerous to their plans.

After you see a few of the casualties, you realize that your life might be easier if you just ACT like you are working for your worker bee constituents instead of working for your masters. As long as you can keep up the act you prosper. If you falter, there's so much pressure from your family and friends and constituents and your masters that you put your best effort back into your work and you do fine. If you get tired of your job you might get a promotion or a lateral transfer, but you still remain in the realm of the powerful.

Cynical? Perhaps.

I think they leave a few Kucinich-types and Bernie Sanders-types in for effect. They know those guys can't hurt them so they keep them around to show us bees and ants the system really does work.

[Raksha]

56. You did a superb job of connecting the dots in that post,

if that's even the right way of putting it...maybe "seeing the forest" would be better. Anyway, that reply deserves a thread of its own.

[bertman]

65. Thanks, Raksha. How would I start that as a separate thread, and what category should it be?

[Raksha]

66. I think you should start it right here in General Discussion.

You click on the button at the top of the screen that says "Post," the one with the pencil icon, come up with an appropriate subject line, and then just post it as you would a reply.

[lonestarnot]

18. Makes sense WaMu gone.

Stop the fucking bail-out!

[Kip Humphrey]

21. Maybe its time to start following the money... I suggest starting with JPMorgan.

[slipslidingaway]

23. I think that is a great place to start. n/t

[G_j]

24. that makes a world of sense n/t

[slipslidingaway]

27. Bear Stearns and JPM

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=351988&mesg_id=352033


"...Of course the truth simply had to be that if Bear had filed bankruptcy and the credit default swaps written against their bonds/debt/asset positions had been triggered, the credit default swap liabilities in the market would have been well north of a $6 billion hit to whomever had written those Bear specific CDS contracts. Well north. And that simply could not have been allowed to happen. By the way, just as an item of curiosity, JP Morgan has exposure to over 55% of the total banking system credit default swaps outstanding. Are we connecting the dots clearly enough for you?..."

[lonestarnot]

31. Thanks for that link!

:)

[slipslidingaway]

39. YW, they publish a monthly article that I've been reading for

years.

[Jello Biafra]

26. It's plain to see that....

the Shock Doctrine is in full force here.

[Odin2005]

33. Can we please be reasonable and not tin-foil BS please?

The way Fed-bashing BS is spreading from loony libertarian circles is ridiculous. :banghead:

[magellan]

34. Maybe instead of being negative

...you could explain where the error in this report or its interpretation is? If there is one I'd like to know.

[dems_rightnow]

48. Sure

The Fed is constantly increasing or decreasing the money supply. It's their function. Tight money doesn't kill banks, it just tightens up credit.

[G_j]

36. yes please point out any BS

in the OP. That would be helpful.

[On the Road]

43. Everyone's Jumping on the Bandwagon

of some previously unknown commentator trying to flog his website.

Apparently, no one, including the blogger, can explain the reason for the drop in liquidity other than a conspiracy theory.

It did occur to me, however, that the drop might be the back side of the $180 billion released into the markets a week and a half ago. That move temporary and was bound to be reversed at some point.

[Odin2005]

49. Good point!

Re:
"It did occur to me, however, that the drop might be the back side of the $180 billion released into the markets a week and a half ago. That move temporary and was bound to be reversed at some point."

[magellan]

58. Thank you

That's far more informative than being called :tinfoilhat:!

[Trillo]

35. This, and other aspects of the bailout needs to be investigated by forensic accountants

that aren't under political or economic control.

It appears the Federal Reserve is the bad guy, and many have said that for many years now, essentially that they represent the public face of the shadow government, the owners of all of us. How to get an honest investigation under such circumstances appears impossible, and getting justice served harder still.

[Irish Girl]

37. hmm

Odin, I find it funny how you assume I'm

a) Libertarian

b) clueless and some kind of gold bug.

An honest currency does not need to be a gold standard, although it certainly could be. And since you bought up John Maynard Keynes, let's examine some of his thoughts.

"The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some...There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." - John Maynard Keynes

"I work for a Government I despise for ends I think criminal." - John Maynard Keynes, letter to Duncan Grant (15 December 1917).

[Truth2Tell]

54. coincidinker... regarding a)

maybe it was your respectful reference to "Congressman Dr. Ron Paul" upthread?

Many of us at DU already have eyes wide open regarding the Federal Reserve. I'm glad to see a new voice here on the subject. However, Ron Paul is a dipshit. Most of what he says on the subject is rehash of other people's material. You would be well advised to reference those sources directly and leave Mr. Congressman Doctor out of your posts entirely.

Just a helpful DU hint. And welcome! :hi:

[muriel_volestrangler]

57. OK, so what does that mean?

And whose figures are those? As displayed there, they mean absolutely nothing to me. And I can't find any explanation in this thread either, despite 32 recommendations and 57 replies.

Financial discussion should consist of more than "OMG!!!!!"

[malaise]

62. IMF policies have been imposed

That should be OMFG!!! WTF!!! and welcome to hell.

[magellan]

59. Here's an excerpt of this guy's plan

...to fix the financial mess, from the video on the site G_j linked to. I'd be very interested in hearing thoughts on it.

All right, let’s go back to there basics and what we really need to do. We have the three part plan to actually stabilize the credit markets and return trust. First there’s balance sheet transparency, 100 per cent, including all level 3 assets and how you are marketing them to the market. The second is to put all credit defaults swaps on a regulated exchange -- that is very important, it gets rid of the credit default swap monster, snip the fuse on the bomb and makes sure it never goes off. And third is, force all institutions to take leverage down to no more than 12 to 1. In the case of the credit default swaps, they’ll give you 90 days, in the case of the leverage, they’ll give you 6 months. One sixth has to come off every month in the case of leverage, if you are levered up over 12 to 1. And this is all supervised. All right. So let’s say we do those three things, and that’s the Bill that we actually report out of Congress.

Well, does this fix everything? No, it doesn’t. We are left with the fact that there is going to be a capital dearth. There are two independent problems. One is liquidity and the second is solvency. Solvency is basically, ‘You’re bust.’ All right. On the liquidity angle, we should have no problem with liquidity in these institutions that are illiquid but otherwise solvent, once we take these three steps. The reason is, anyone will be able to pick up a balance sheet and figure out that there is no solvency problem; the firm is a going concern and will remain one, and therefore there shouldn’t be a problem with accessing liquidity. But those firms that are really insolvent, okay, we’re claiming they’re illiquid, but the truth is, they’re broke, and we’ve been hiding it. This Act is going to bring that to the forefront. We need to talk about how we solve that problem.

There’s a number of different ways to do it. The easiest is something like the RFC, which is a depression era organisation, that recapitalised a number of these banks. In most cases I suspect private capital will come in, once it understands the balance sheet and the risk. But in the event that we can’t make that happen, then the next best step is, instead of what we are trying to do now, we’re just throwing $700 billion at the problem, we should force all of these firms into involuntary receivership. This will force the bonds to take a small haircut, because in most cases the bonds have plenty of cushion to make sure that the firm is able to actually meet its obligations. It will wipe out the stock-holders and the common stock, that goes without saying. For those firms that are actually broke, that’s what happens; you go broke, your stock is at zero. But it allows the firm to continue to operate normally. So the next morning when you get up, if your bank is one of the unfortunate ones that this happens to, your ATM card still works.

This is very similar to the kind of procedure that the FDIC uses now. We take them in, we forcibly recapitalize them, and if we can, we sell them off at a discount to somebody. If that ends up being, you know, whatever it is, if there is no discount available, well, you know, listen, if the bond holders are totally wiped out, then they’re totally wiped out, and it’s bankrupt and there are actual losses. But this is why bond holders buy bonds; there is risk associated with this, but in most cases the losses in those bonds are going to be very small.

We need to take this sort of a step because, as we put these firms through this process, we will find some where everything is a zero, and these firms are literally bankrupt, they have a negative net worth. Now, if that sort of situation arises, and there probably will be some, in that case the government needs to step in and take care of those guaranteed things -- for example, your FDIC bank account insurance; in the case of a broker dealer, your SIPC insurance, if the firm has been illegally combing away funds, which they are not supposed to do, but it’s possible that they have. In those situations, we need the government to step in and make people who are within those insured limits, whole.

For the most part, this plan will involve absolutely no tax-payer money, but there will be some that will end up being spent, because there are probably going to be a few hundred banks that actually go under, and are forced to recapitalization and reorganization. May of those banks will be able to be reorganized, with only a hit to the people that are invested in that individual bank. For those that are not, we should be considering the RFC type of structure to handle that formal outlay that needs to come out of our Congress. In those cases, if there is upside available, the people need to get it back before the executives, the shareholders or the bond holders get anything. After all, if we’re going to put our money on the line, we’re the ones who should benefit from it.

[malaise]

60. Welcome to the land of the International Monetary Fund

http://www.imf.org/external/np/speeches/2008/092408.htm
<snip>
Direct intervention is the third line of defense. It has become obvious that direct fiscal intervention is going to be needed in the United States and elsewhere in order to attain the goals of removing distressed assets from financial institutions' balance sheets, and in recapitalizing the financial system where appropriate.

In this context, we welcomed the decisive actions taken by the U.S. authorities to shore up the GSEs, providing crucial support for the U.S. housing market, the banking system, and the broader economy. Over the longer term, a deep restructuring of the GSEs remains essential to restore market discipline, minimize fiscal costs, and limit systemic risks for the future. Ultimately the conflict of private ownership and public policy objectives within the GSEs' former business model needs to be resolved.

The challenge of removing distressed assets from financial institutions' balance sheets currently is front and center, with the US authorities' TARP proposal currently being examined by Congress. The discussions of the TARP have underscored the myriad difficult judgments that have to be made in order to make such a program a success. It is possible that similar challenges will be faced by other advanced economy authorities in the coming months. Earlier this year, the IMF proposed a solution based on long-term swaps of mortgage securities for government bonds. The advantage of such an approach is that it provides near-term relief for bank balance sheets, while ultimately leaving the underlying credit risk with the banks, rather than the taxpayers. In any case, the current discussions also have underscored the importance that moral hazard issues play in direct fiscal intervention in resolving financial sector crises.

More broadly, efforts aimed at alleviating systemic risks, including notably the provision of support to key financial institutions, will require sound judgment. For example, the current market strains to some degree reflect solvency risks. underscoring the need for a systematic and comprehensive approach to deal with distressed assets of failed institutions and in the financial sector more broadly.

[specialed]

61. The only reason I can see for this is to stall the coming inflationary pressure...

from injecting 700B in the market over a short period of time.


FYI- Right before oil shot through the roof to an all time high in the $140 range is was trading around 65 to 75 a barrel. From the time oil went from $85 to $140 was the direct result of injecting $238 B in the markets 3 years ago. By decreasing the supply in the short term it moves the inflationary pressure launch point back.

[leftrightwingnut]

63. They were right: we were almost totally fucked. But that ship has sailed.

The "crisis" is over. A bail-out bill could never have come fast enough. Time to carefully consider how to clamp down on wall street so they don't get themselves into this predicament again. Assholes.

And we need to figure out how to bail out the average consumer who is really going to need it in a few months...

[leftrightwingnut]

64. We *had* a liquidity crisis, Ben. It's now past tense. Very past tense.

On edit: It lasted for all of about 12 hours.