Wednesday, August 22, 2007

Voodoo Economics 101

Four Major Banks Borrow From Fed

NEW YORK (AP) -- Four major banks said Wednesday they each borrowed $500 million from the Federal Reserve's discount window, lending weight to the central bank's efforts to restore liquidity to tight markets.

In a joint statement, the latter three banks said they decided to borrow the money to demonstrate "the potential value of the Fed's primary credit facility" and encourage its use by other banks.

"Simultaneous action by these four institutions -- at the same time, on the same day, for the same amount of money -- suggests that the move is intended to have some symbolic value," said Aaron Gurwitz, co-head of portfolio strategy at Lehman Brothers Investment Management Division. "But it may also be a way for them to make money."

Gurwitz followed up his statement by hopping three times on each foot and rattling a chicken bone.

Head shaman Bernanke remained in seclusion today and is expected to announce his latest tea leaf reading later this week


Desert Beacon said...

And symbolic value is all it will have. I wish I could remember the title of one of Paul Krugman's columns that recently explained with great lucidity and precision just why Fed Action is meaningless in any real way. I do remember his bottom line, which nailed the whole issue: The Fed deals with traditional banks and the discount rates won't matter because the outfits that are in trouble aren't traditional banks. Period.

BadTux said...

Remember, the basic goal is to transfer real wealth (i.e., tangible things like land and housing) from ordinary Americans to the elite. If you look at it this way, all of these actions make sense. The banks will need the liquidity to provide to the elites when they buy the loans from bankrupted mortgage lenders for pennies on the dollar then foreclose on the homes and use them for investment properties or flip them for cash. The depressed housing prices will then create more non-performing homes as people walk away from homes they cannot sell when forced to move due to job or etc. circumstances, and the cycle will continue until the majority of homes are owned by the elite and the rest of us... meh. Renters.

It all makes sense when you look at it as a wealth transferral scheme, rather than an attempt to prop up mortgage lenders. As for the iffy mortgage-backed securities, most of those were purchased by foreigners or by the middle class (via their 401k's) anyhow, so the elites don't care.

Vigilante said...

Unregulated Capitalism = unimaginable evil.

Not Your Mama said...

What gets me is the number of people who did not see this one coming????

DB: exactly, I had to laugh at the run on Countrywide bank. What part of banking with a mortgage company did people think was a good idea?

The funniest thing is it's primarily the people who are called "conservatives" who are wound up in this mess. I'm a true financial conservative, in the old-fashioned sense of the word and there is nothing "conservative" about the financial policies and practices they pursue.

Interesting tidbit in the news about the financial habits of our candidates. Guess who is the most financially conservative in actual practice? Barack Obama.

Vigilante said...

Like Howard Dean, four years ago!

TomCat said...

It was easy to see it coming. My best friend is a Realtor, and I have been warning her not to overextend herself for months. Now she's struggling to refinance properties. In her case, it was a "see what you want to see" and "should have known better" scenario. However, there have been many more for whom it was living on credit out of desperation.

Not Your Mama said...

Yeah, I thought it would hit earlier, was expecting Jan-Feb so I got ready a bit early.

Blogger said...

Get daily suggestions and methods for earning $1,000s per day FROM HOME for FREE.